Gloomy scenario for construction business

By ANA TAVARES [email protected]

The construction business in Portugal suffered an unprecedented fall in demand in 2012, a scenario that is estimated to continue in 2013. The sector registered 44.4% less orders with a 30.2% drop in permit requests in 2012, announced the Portuguese Federation of the Construction Industry (Fepicop) on February 4.

According to a statement released by the federation, “the construction business registered the lowest numbers of all time” in 2012, as the job prospects in the field dropped by 17% and the confidence level of business owners decreased by 25.6%.

But 2012 was also a bad year in terms of revenue, with the financial situation of construction companies worsening by 7.8%. Speaking of “a huge crisis in the construction sector”, Fepicop stressed that the fall in demand is also affecting suppliers, particularly the cement industry, which registered a 26.9% decrease in demand – the largest year-on-year drop since 1973.

The federation also estimated that investment in the sector had fallen by 18.1% by September 2012 and that the gross added value dropped by 15.3%.

There appears to be little respite for the industry following the gloomy scenario in 2012, as it is anticipated that the situation will not improve in 2013. In fact, according to a survey released in late January by the National Statistics Institute (INE), the construction industry is topping the list of businesses where investments are most likely to decrease in 2013, with a whopping 35.8% drop.

The situation in the sector is in keeping with other industries in the rest of the country, as INE estimates a reduction of corporate investment of 4.2% this year.

According to Portuguese newspaper Público, the data gathered between early October 2012 and mid-January 2013 recorded a severe fall in investment last year (including a gross fixed capital formation drop of 26.4%), a less pronounced decline compared to the previous year. However, the investment curve – which measures the corporate investment intentions – is still dropping in most sectors (9 out of 13), from hotels and restaurants to real estate, car repairs and commerce.

The only sectors estimated to escape the downward trend are electricity and gas suppliers, water and sewerage, administrative activities and support services.

The INE survey also indicates that whilst construction will remain one of the business areas struggling the most, other sectors such as accommodation and restaurants will follow closely, registering a nearly 25% drop. In addition, investment in financial companies and insurance brokers is estimated to decrease by 16.2%.

Also contributing to the survey’s dark estimates are the food, beverages, tobacco, textile, pharmaceutical and office IT equipment industries, where it is estimated there will be a reduction in investment, much as in 2012.

When such companies decide to invest their money, they spend it on equipment, construction and transportation materials, revealed the INE. Whilst the sums spent on equipment will increase by 1.2% this year, these companies will save money on transportation materials (less 17.5%) and construction (1.2%). However the greatest toll will be on human resources in 2013, with companies reducing their spend on the creation of new jobs by 13.6%.