Challenging recovery ahead for UK and Spain construction
Construction in the UK and Spain is set to recover in 2021 but downside risks remain, according to GlobalData.
The Spanish and UK economies suffered severe downturns in 2020 amid the disruption caused by Covid-19 lockdowns and other stringent restrictions on activity. While both economies expanded slightly on a quarterly basis in Q4 2020, both were severely impacted by the pandemic, with real GDP contracting by 9.1% in Spain and 9.9% in the UK in 2020.
The positive Q4 quarterly real GDP data for both the UK and Spain provides a foundation going into 2021. However, while fthe countries’ overall economies have followed a similar path, the Q4 construction data shows a diverging path, with the Spanish construction industry contracting by 8.1% and the UK construction industry growing by 4.6%.
While both industries are expected to recover in 2021, output will remain significantly below 2019 levels as a result of the pandemic and a weaker investment environment following the devastating impact of the economic downturn on corporate earnings in 2020.
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A positive outlook for construction in Spain
The Spanish construction industry recorded a contraction of 18.2% in Q4 2020 on a yearly basis while output was down by 8.1% on a quarterly basis. Several sectors in the industry were adversely affected. The fall in tourism flows saw the brunt of the economic damage falling on the traditionally strong commercial sector.
Despite the turbulent year the industry faced in 2020, GlobalData expects the Spanish construction industry to grow by 7.4% in 2021. Growth will be supported by significant government spending on infrastructure, residential and renewable energy projects.
However, downside risks remain. The slow vaccine rollout across the EU may push back the timeline for the easing of restrictions. The baseline scenario remains positive, with fiscal and monetary support driving the recovery in 2021.
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UK spending plans signal growth
Meanwhile, the UK construction industry also faced a difficult year, with output contracting by 12.5%. This was the second-largest fall on record and the sharpest fall since the financial crisis in 2009.
Ongoing lockdown measures, coupled with Brexit difficulties, mean the industry will face a tough start to the year. However, the outlook for the industry in 2021 is positive. The UK’s successful vaccine rollout programme will likely lead to a lifting of lockdown restriction, which will provide a boost to confidence in the commercial and hospitality construction sectors.
The government’s infrastructure spending plans and accommodative monetary policy will also provide a boost for the infrastructure and residential construction sectors this year.
Despite the sharp fall in output last year, the industry is expected to recover in 2021, with GlobalData forecasting a 6.8% increase in growth this year. There are downside risks to the forecast, including new strains of the virus which may mean further lockdown measures being imposed later in the year. However, the baseline outlook for the industry and the wider UK economy remains positive for 2021.
Main image: Construction workers return to work in Barcelona, April 2020. Credit: Daniel Ferrer Paez | Shutterstock.com