Building slump rolls on for euro area economies

CONSTRUCTION in the Eurozone bucked the region’s modest growth trend in October, with production contracting 1.2 per cent from the previous month.

The troubled sector is not following the Eurozone economies’ return to feeble expansion, and has now declined 2.4 per cent since the same month last year.

Construction production is still below levels seen in 2011 and most of 2012, and has declined by almost a quarter since its peak level before the financial crisis. In addition, poor production figures indicate that construction is less likely to contribute positively to GDP figures in the fourth quarter.

The figures show a clear divergence between different countries in the euro area: while production dropped by 3.9 per cent in Spain and 1.1 per cent in France during the year to date, Germany’s more buoyant construction sector held flat.

The IFO index of economic confidence also recorded robust sentiment this month, with the headline figure for Germany’s business climate rising to 109.5, up by 0.2 points from November.

Any number over 100 indicates a stronger business climate than in 2005. The index for expectations also rose to a higher level than expected, reaching 107.4.

“The IFO index points to a further acceleration in investment momentum. Strengthening German domestic demand should also help the Eurozone crisis countries pursue their export-led growth strategies successfully,” added Berenberg’s Christian Schulz.

Capital Economics’ own assessment of the French economy suggested that a third recession may be narrowly avoided in the fourth quarter.

James Howat, of Capital Economics added: “The economy’s underlying problems mean that GDP growth in 2014 will probably fall short... As Spain and Italy’s first and second largest export market respectively, France’s sluggish recovery will undermine these countries’ abilities to grow out of their debt problems.”