New foundations for the construction sector?

Transcription

1 New foundations for the construction sector? Ludovic Subran, Chief Economist & Research Manager Yann Lacroix, Sector Research Manager Manager Didier Moizo, Sector Analyst Press conference Paris, 21 June 2012

2 Contents 1. Can construction growth revive? 2. Without growth, what is left for the construction sector? 3. Erosion of profitability for sector companies 4. Conclusion 2

3 Can construction growth revive? Evolution of GDP and construction at global level 5,0% 2,5% 0,0% -2,5% -5,0% One point construction for 1.4 point growth? The construction tool 2012 growth: 2.6% 2013: 3.1% Construction: 2012: 2.0% 2013: 2.2% Existence of a structural link between the construction sector and economic growth: myth or reality? If so, how? Sources: GlobalInsight, IMF, Euler Hermes Taux Construction de croissance growth de rate la construction Taux GDP de growth croissance rate du PIB No direct answer, but an intuition? The visible structural link between building and GDP The structural link between construction and GDP 3

4 Can construction growth revive? Construction to support growth 35% 30% 30% 27% 25% 25% Recovery plans: France: 1.8 billion Euros 20% 19% China: 12 billion Euros 15% 10% 5% 3% 3% 7% 10% 5% 4% 9% 10% United Kingdom: 2.1 billion Euros Investment plans: 0% United States Europa France China Brazil 2001/2014: 660 billion Euros (road network, energy production) Construction Building/Investment / Investissement Construction Building/GDP/ PIB Building Construction jobs/total employment jobs / total employment Source: Comptes de la Nation, Euler Hermes India: 100 billion Euros over 5 years (rail network, bridges) Construction is a source of investments Construction creates wealth and jobs Construction represents key element of the economy Measures to support the residential sector: Tax allowances, low-interest loans (France: zero-interest loan). Extending credit periods (USA: 30 years, Spain and Portugal: 40 to 50 years) 4

5 Can construction growth revive? Evolution of real estate prices in the USA, China and Spain 150% 130% 110% 90% 70% 50% USA Beijing Spain 148% 123% 128% No continent has been spared the real estate bubble Absorbing the housing inventory available for sale will take several years 30% 10% -10% -8% -20% -21% -30% Period: 1991/ / / / /2011 Source: Euler Hermes Real estate bubbles have followed successively on all continents 5

6 Can construction growth revive? Household mortgage debt/gdp In % in 2010 Russia Brazil India China Italy Greece France 2.7% 4% 7% 15% 22.7% 35% 41% Rise in mortgage debt ratio in Western countries will reduce the room to manoeuvre for several years (3x in Greece in 10 years) Interest rates have started to rise again. The lever of extending loan duration can no longer be activated Germany 46.5% Spain 64% USA 76.5% Great Britain 85% Sources: European Mortgage Federation, Eurostat, Euler Hermes Household debt has eroded their financial position 6

7 Can construction growth revive? National debt as a % of GDP Russia Russie China Chine Brazil Brésil 10% 26% 66% Apart from emerging countries, the average national debt ratio is close to 100% Inde India Espagne Spain Allemagne Germany Royaume-Uni United Kingdom 68% 68% 82% 83% In four years, it has risen by 35% on average, after being stable since the beginning of the decade France France EtatsUSA -Unis 86% 103% Italy Italie 120% Greece Grèce 161% Sources: IMF, Eurostat, Euler Hermes The cost of reviving construction is very high 7

8 Contents 1. Can construction growth revive? 2. Without growth, what is left for the construction sector? 3. Erosion of profitability for sector companies 4. Conclusion 8

9 What is left for construction? Evolution of construction activity indices in volume 15% 10% 8.9% USA: a gradual exit from crisis for the first country to enter it 6.6% 6.7% 5% 0% -5% -10% -15% Spain -4.5% Greece -2.6% Italy -1.3% Eurozone (12) -1.2% France 0.2% 0.4% 0.7% Great Britain Germany USA 1.8% Russia 3.4% Brazil India China Spain: continuing impact from the collapse of the real estate bubble Eurozone hampered by the Mediterranean countries Sources: GlobaIlnsight, IMF, Euler Hermes The activity (+2.0% in 2012) is driven by the emerging countries 9

10 What is left for construction? Population increase (in thousands) and urban development rates (in %) Population increase in 2012 Dual demographic effect in India per thousands of inhabitants India China USA Brazil Eurozone Great Britain Spain France Italy Greece Urban development rates by country in 2011 (in % of the population) Germany Russia % 49.2% 82.1% 84.2% 73.0% 79.5% 77.3% 85.2% 68.2% 61.2% 73.8% 73.7% High urban development potential Brazil to rebuild urban housing Housing shortage: France: Brazil: 10 million India: 24 million Sources: OECD, United Nations, Euler Hermes The dual effect of the demographic variable 10

11 What is left for construction? Per capita GDP change in 2012 (in $ and in %) Growth rate of per capita GDP 2012/2011 High levels of wealth in Western countries dollars per capita 0.8% -0.5% 0.2% -1.2% -1.0% -1.7% -1.9% -6.8% 4.0% 2.3% 7.3% 5.8% Faster growth in the emerging countries, despite persistent inequalities Tense situation in less wealthy Western countries that are experiencing the crisis USA Great Britain Germany France Eurozone Italy Spain Greece Russia Brazil China India Sources:GlobalInsight, World Bank, Euler Hermes Two worlds with two measurements of wealth 11

12 What is left for construction? Differential between the growth rate of income and housing prices since 2000 Russie Russia -8,1% Inde India -7,3% Brazil Brésil -4,0% France -3,1% Grande Great Bretagne Britain -2,8% Italie -2,6% Italy Espagne Spain -2,2% zone euro -0,5% Eurozone Greece Grèce -0,4% The average annual rise in income does not cover the annual average rise in housing prices l Etats-Unis USA 1,1% Allemagne Germany 3,6% Chine China4,3% -10,0% -8,0% -6,0% -4,0% -2,0% 0,0% 2,0% 4,0% 6,0% Sources: World Bank, National statistics offices, Euler Hermes But the disparity between prices and income is general 12

13 What is left for construction? New growth opportunities Environmental standards for energy savings and lower CO2 emissions: 550 billion dollars Prospects for the renovation sector: 80% of buildings do not meet environmental standards Additional cost of an HEQ and BBC building: 10% to 15% more 75% of existing buildings in Russia and 40% in Poland Commercial and office investment: office real estate is driving corporate investment in Western Europe: +7% in the first quarter 2012 External events: 2014: World Cup in Brazil 2016: Olympic Games in Brazil 2014: Winter Olympic Games in Russia Source: Euler Hermes Some potential for growth exists in the world 13

14 Contents 1. Can construction growth revive? 2. Without growth, what is left for the construction sector? 3. Erosion of profitability for sector companies 4. Conclusion 14

15 Erosion of company profitability Profitability of large global groups Net income/turnover Low profitability of Asian groups, despite a very gradual improvement China 1.9% 2.1% 2.2% Europe 5.0% 3.7% 3.6% European and American groups lead, despite eroding profits USA 4.3% 4.9% 4.8% Sources: Companies, Euler Hermes Large European groups caught by the crisis: -1.4 point in two years 15

16 Erosion of company profitability French companies profitability Business stagnation Pressure on prices Turnover trend France % 1% 0.5% Net income trend -9% +0.5% -3% Scissor effect on raw materials: Steel: August 09/April 12: +22% Cement: +3% per year since 2010 Net income/turnover 3.6% 3.6% 3.4% Deterioration of profitability Source: Sample of companies, Euler Hermes 3% profitability drop expected in

17 Erosion of company profitability Bankruptcies in Building & Public Works in France EH forecasts: bankruptcies in 2012: +3.5% Number of Building bankruptcies & Public in Works Building in France: & Public 25% of bankruptcies Works in France in France Bankruptcy rate: 3.2% in 2011 (vs. 1.7% on average in France) déc-00 juin-01 déc-01 juin-02 déc-02 juin-03 déc-03 By annual slide and publication date juin-04 déc-04 juin-05 déc-05 juin-06 déc-06 juin-07 déc-07 juin-08 déc-08 juin-09 déc-09 juin-10 déc-10 juin-11 déc-11 juin-12 déc-12 Source: Euler Hermes 2012 outlook: High level of bankruptcies, and a further 3.5% increase Fragility of French small business network 17

18 Contents 1. Can construction growth revive? 2. Without growth, what is left for the construction sector? 3. Erosion of profitability for sector companies 4. Conclusion 18

19 Conclusion The historically established correlation between construction and growth encourages recovery policies that focus on construction to exit the crises. These policies are hard to implement given the levels of private and public debt. They can prove costly in the short and medium term, despite the visible effect on employment. Given debt and costs factors, and a lack of economic growth, construction must go back to basics, or seek new growth areas. Against this backdrop, the sector will continue to face serious difficulties in 2012 and 2013, and company profitability will continue to decline. 19

20 Thank you Thank you. for your attention. 20