VEIDEKKE ECONOMIC ACTIVITY REPORT: 7 March 2016 Kristoffer Eide Hoen

Transcription

1 VEIDEKKE ECONOMIC ACTIVITY REPORT: 7 March 2016 Kristoffer Eide Hoen

2 NEW ERA IN SCANDINAVIA? Estate agent specialising in holiday homes: Swedes and Danes are paying the most Weak Norwegian krone: Petter Birkrem sees a new trend Facsimile from the Norwegian financial newspaper Finansavisen, 18 February

3 GREATEST INCOME GROWTH IN SWEDEN REAL ANNUAL WAGE GROWTH IN 2015 (%) Source: Norges Bank, the Norwegian Technical Calculation Committee for Wage Settlements (TBU), the Swedish National Institute of Economic Research (KI) and the Swedish Ministry of Finance 3

4 NEW EXCHANGE RATES ESPECIALLY FROM A NORWEGIAN PERSPECTIVE - 8% - 8% % % 90 NOK/SEK NOK/DKK Q4 14 Q4 15 Source: Norges Bank 4

5 CONTENTS Economic trends Regional differences in Norway Forecasts for 2016 and 2017 Key market areas: The residential market in key regions Private non-residential buildings mixed outlook Expansive public sector 5

6 VEIDEKKE'S ECONOMIC ACTIVITY REPORT: BACKGROUND AND METHODS Veidekke's Economic Activity Report shows the Group's forecasts for developments in the Scandinavian construction and civil engineering market in 2016 and 2017 Economic forecasts (GDP, employment, consumption, etc.): Estimates based on the consensus of established forecasting agencies in the three countries Statistics Norway (Norway), Norges Bank (Norway), the National Institute of Economic Research (KI) (Sweden), the Danish Economic Councils (Denmark), and others Forecasts for construction and civil engineering: Veidekke's own assessments based on economic forecasts, internal sources, public budgets and action plans, and economic forecasts from the Federation of Norwegian Construction Industries (BNL), the Swedish Construction Federation (BI) and the Danish Construction Association 6

7 ECONOMIC GROWTH: SWEDEN LEADING THE WAY Norway: weaker outlook - Zero growth in Q % in 2016 and 2017 (?) Sweden: heading for an upturn - Peak at 4% in Growth will slow down, but remain high Denmark: moderate growth - GDP weaker than expected in Close to 2% growth in 2017 Source: Veidekke, Statistics Sweden, Statistics Denmark and Statistics Norway 7 Legend: Red dashed line shows forecasts for 2016 and 2017 Blue dashed line shows forecasts from March 2015

8 INTEREST LEVELS < 0 Historically low interest rates during the forecast period Sweden: moderate rise in interest rates from the 1st half of 2017 Norway: towards 0% in 2016 Denmark: possibility of interest rate rise in 2017 Source: Norges Bank, Danish National Bank, the Riksbank 8

9 LABOUR MARKET: DIFFERING TRENDS Norway: Moderate, with gradual slowdown - Increasing regional differences - Unemployment is 4.5% and rising Sweden: Positive development - High growth projections for employment - Unemployment is 7.0% and falling Denmark: Positive development - Employment growth remains good - Unemployment is 6.2% and falling Source: Veidekke, Statistics Sweden, Statistics Denmark and Statistics Norway 9 Legend: Red dashed line shows forecast for 2016 and 2017 Blue dashed line shows forecast from March 2015

10 CAPACITY UTILISATION DECLINING Share of companies with challenges in finding labour force: The slowdown started before the fall in oil prices in summer 2014 Generally lower capacity utilisation Greatest change in the south-west and north-west Source: Norges Bank 10

11 DEPENDENCY ON THE OIL INDUSTRY IS AN IMPORTANT EXPLANATORY FACTOR Employees in oil-related businesses Directly and indirectly, share of total employment in % 30% 20% 10% 0% 40% 21%21% 17% 13%13% 10% 9% 8% 8% 8% 7% 6% 6% 5% 3% 3% 2% 1% 1% IRIS's calculation of oil-related employment: - Rogaland has a particularly high share of people in oilrelated activities - Many counties with few oil-related activities Registered unemployment as at February 2016: - Rapid rate of change, but low levels - In Rogaland unemployment has risen to 4.9% as at February - Still 3 3.5% in Oslo, Akershus and Hordaland 11 Source: International Research Institute of Stavanger (IRIS) (left) and NAV (right)

12 REGIONAL DIFFERENCES: INVERSE DEVELOPMENT Employment growth in 2015 vs : Annual growth (%), selected counties 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% 1.7% 1.9% 2.1% -4.4% -3.6% -1.2% 1.6% % 0,0 % 2.6% -0.4% 3.0% Regions dependent on the petroleum industry had strong growth until 2014 necessary downward adjustment now? Counties that have been in the "shadow" of the oil industry since the financial crisis are experiencing better times: Cause: Weak exchange rate, trading partners experiencing moderate recovery Effect: Increased investments in traditional industries, tourism, etc. Source: Statistics Norway (Labour Force Survey) and Veidekke 12

13 REGIONAL DIFFERENCES: INVERSE DEVELOPMENT Regions dependent on the petroleum industry had strong growth until 2014 necessary downward adjustment now? Jotun to invest 1,1 billion in Sandefjord - making their biggest investment ever Counties that have been in the "shadow" of the oil industry since the financial crisis are experiencing better times: Cause: Weak exchange rate, trading partners experiencing moderate recovery Effect: Increased investments in traditional industries, tourism, etc. Source: Statistics Norway (Labour Force Survey) and Veidekke 13

14 REGIONAL DIFFERENCES: INVERSE DEVELOPMENT Hydro to build factory on Karmøy Largest industrial investment in Norway in over ten years Competitive labour cost disadvantage Norwegian companies vs. foreign: (2012) 57% (2015) 37% (2016)...?! Source: The Norwegian Technical Calculation Committee for Wage Settlements (TBU) Regions dependent on the petroleum industry had strong growth until 2014 necessary downward adjustment now? Counties that have been in the "shadow" of the oil industry since the financial crisis are experiencing better times: Cause: Weak exchange rate, trading partners experiencing moderate recovery Effect: Increased investments in traditional industries, tourism, etc. Source: Statistics Norway (Labour Force Survey) and Veidekke 14

15 RESALE HOUSING MARKET AS AN INDICATOR CONTROLLED SLOWDOWN SO FAR February 2016 Growth (%) Last 3 months Last 12 months Last 5 years Oslo Bergen Trondheim: Stavanger Kristiansand Norway Source: The Norwegian Real Estate Association (EFF) 15

16 16 PROGNOSES FOR CONSTRUCTION AND CIVIL ENGINEERING IN

17 INVESTMENTS IN CONSTRUCTION 2015 NOK BILLIONS Residential 50% % 60 25% Private nonresidential buildings Public nonresidential buildings Civil engineering % 40% 60% Source: Veidekke, Statistics Sweden, Statistics Denmark, Statistics Norway and Norges Bank 17 Total 271 Total 355 Total 137 Share of new-build residential buildings Share of transport infrastructure

18 e 2016f 2017f e 2016f 2017f CONSTRUCTION INVESTMENTS IN SCANDINAVIA Annual growth (%) NOK billion* per year (2013 prices) 10,0 % 5,0 % 0,0 % -5,0 % -10,0 % 3.4% 3.2% %** +2%** +4%** 50 average 3.6% Source: Veidekke, Statistics Sweden, Statistics Denmark, Statistics Norway and Norges Bank * Exchange rates for Q ** Compound annual growth rate (CAGR)

19 e 2015e 2016f 2017f NORWAY: PUBLIC SECTOR DRIVING THE GROWTH Investments in the construction and civil engineering market Fixed prices, NOK billion (2013) %* +9%* -2%* +3%* Weak growth in residential buildings, decline in private non-residential buildings Public sector will drive growth Total investment growth: - 3% in % in 2017 Source: Statistics Norway and Veidekke 19 Residential Public Commercial buildings Private Commerial buildings Civil Engineering * CAGR

20 e 2015e 2016f 2017f SWEDEN: CONTINUING GROWTH Investments in the construction and civil engineering market Fixed prices, NOK billion (2013) %* +4%* +4%* +5%* The residential market is limited on the supply side Expansive public investment budgets Total investment growth: - 4% in 2016 and in 2017 Source: Statistics Sweden and Veidekke 20 Residential Public Commercial buildings Private Commercial buildings Civil Engineering * CAGR

21 e 2015e 2016f 2017f DENMARK: 2015 WAS DISAPPOINTING, SLIGHT IMPROVEMENT IN 2016 AND 2017? Residential Public Commercial Buildings Private Commercial buildings Civil Engineering +7%* 0%* +5%* Source: Statistics Denmark and Veidekke * CAGR Moderate growth in private segments State and local authorities are cutting back Although growth in hospitals and universities Total investment growth: - 3% in % in

22 FORECASTS FOR THE CONSTRUCTION SECTOR INVESTMENTS 2015 NOK bill growth 2017 growth 2015 NOK billion* 2016 growth 2017 growth 2015 NOK bill. * 2016 growth 2017 growth Residential 120 0% -1% 137 5% 2% 60 5% 10% Non-residential buildings private 51-2% -2% 100 4% 4% 19 3% 7% Non-residential buildings public 33 3% 3% 41 5% 5% 18 5% 5% Civil engineering 67 9% 5% 77 2% 6% 40-2% -2% Total 271 3% 1% 355 4% 4% 137 3% 5% Sources: Statistics Norway, Statistics Sweden, Statistics Denmark and Veidekke 22 * Conversion to NOK uses average exchange rate for 2015

23 23 CENTRAL MARKET CONDITIONS

24 1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS

25 1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS DEMAND +9%* +5%* +3%* +5%** +2%** +3%** +17%* +11%* +11%* +5%** +5%** +13%** +13%* +7%* +6%** +6%** Demand has remained good Source: Veidekke, the Norwegian Real Estate Association (EFF), Mäklarforbundet (Swedish Real Estate Association) and the Association of Danish Mortgage Banks 25 Double-digit growth in price (and activity levels) Prices back to 2007-levels (nom.) * Last observed 12 months. ** Average per year in 2016 and 2017 Legend: Red dashed line shows forecast for 2016 and 2017 Blue dashed line shows forecast from March 2015

26 1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS ACTIVITY Controlled slowdown? Levelling off after strong growth? Prospects of a moderate upturn Source: Veidekke, Statistics Norway, Statistics Sweden, Statistics Denmark and the Danish Construction Association 26 Legend: Red dashed line shows forecast for 2016 and 2017 Blue dashed line shows forecast from March 2015

27 Source: Finance Norway (FNO) (Norway), Swedbank (Sweden) and the Danish Financial Supervisory Authority (Denmark) 1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS GROUNDS FOR CONCERN? Market psychology 27 Buying power in Gothenburg and Stockholm * Swedbank's "Boindex" is an index where 100 indicates that households have balanced buying power in connection with buying a home. A higher index signals positive effect on buying power and vica versa. Access to credit being tightened Facsimile from the Danish Financial Supervisory Authority, 2 February 2016

28 2. PRIVATE NON-RESIDENTIAL BUILDINGS MIXED OUTLOOK 28

29 2. PRIVATE NON-RESIDENTIAL BUILDINGS MIXED OUTLOOK Continuing decline Offices: Increased vacancy Low employment growth Shops: Declining trend for several years Uncertain consumption forecasts Industrial buildings: Decline in production, but major regional and industry differences Continued broad growth Offices: Employment increasing, interest rates low Shops: Good growth in consumption Industrial buildings: Growth in production, but challenged by low capacity utilisation Many vacant premises slowing the trend Offices: Positive forces, but vacancy rate stable at > 10% Shops: Declining vacancy rates, consumption forecasts positive Industrial buildings: Production increasing, but vacancy rates must continue to fall 29

30 TIGHTER CREDIT CONDITIONS FOR BUSINESSES Explaniation: Index from -100 to A value of -100 signals that all banks i strongly thightening credits constraints and vica versa. A index of 0 signals no changes in credit constraints.

31 3. EXPANSIVE PUBLIC SECTOR 31

32 TRANSPORT: Many major projects out for tender in The projects comprise more than NOK 120 billion for Norway and Sweden combined* National road Rv 83 Harstad tunnel National highway E6 Sjømanskirka National highway E6 Mørsvikbotn National highway E10 Evenes Ornes Ballangen Gullesfjord County road Fv 17 Steinkjer Namsos Trønder- og Meråker rail line National County road FV659 Nordøyvegen highway E6 Vindåsliene National highway E6 Ringebu National Otta highway E6 Vingrom National highway E6 Moelv Biri National road Rv555 Ensby National road Rv3 Løten Sotra National highway Elverum National highway E16 E16 Bagn National Bjørgo road National highway Eggemoen E16 Jevnaker Olum Rv4 National Roa highway Gran E16 National highway E16 Kløfta Metro station Kongsvinger Oslo Förbifarten National highway Bjørum E134 Skaret Fornebu rail line Sandbukta Moss the Danderyd Skanstull National highway E39 Rogfast Kongsberg Haug Onsøy Stockholm Stockholm metro National highway E18 National highway E18 bypass National highway Tvedestrand E39 Døle Arendal bridge Rugtvedt Hisingsbron Dørdal Sicklaanläggningen Sewage tunnel National highway E39 Volleberg Livold bridge National highway E45 Masmolänken Lilla sewage tunnel plant National Lindelia Bommen Olskroken / Centralen rail Brommal highways projects Haga / Korsvägen / The E18 new / Gothenburg E39 Port rail Kvarnberget Varberg line Flackarp Arlöv *Projects over NOK 700 million. 32 Facsimile from Veidekke's investor presentation for Q4 2015

33 EXPANSIVE PUBLIC SECTOR NORWAY Investments in the civil engineering market Fixed prices NOK (2013 rate) Roads Railway Other public Power Other private Source: Statistics Norway and Veidekke +13%* +3%* +1%* +25%* -10%* * CAGR The Government Petroleum Fund, worth NOK 7,000 billion, provides a buffer - In the forecast period Investments in public infrastructure will continue Continued growth in public non-residential buildings - Schools - Health and care facilities

34 3. EXPANSIVE PUBLIC SECTOR OPERATION AND MAINTENANCE OF ROADS AND RAILWAYS Budgets for operation and maintenance* in NOK billion B Fulfilment of National Transport Plan** after 3 out of 4 years Roads % Rail %... a likely candidate for counter-cyclical measures? * Broader range of activity than Veidekke's business area Road Maintenance Source: Ministry of Transport and Communications and Ministry of Finance 34

35 e 2016f 2017f 3. EXPANSIVE PUBLIC SECTOR SWEDEN Investments in the civil engineering market Fixed prices SEK (2013 rate) Source: Statistics Norway and Veidekke Roads Railway Power Other +3%* +18%* -2%* -4%* * CAGR Cutbacks postponed Mainly due to increased tax revenues and inflow of refugees Road projects under way in Stockholm and Gothenburg Growth will also continue in non-residential buildings 35

36 36 TO ROUND UP

37 MAIN ASSUMPTION POSITIVE GLOBAL OUTLOOK IN 2016 AND 2017 GDP growth (%) * Euro zone Germany United Kingdom USA China Globally Source: Swedish National Institute of Economic Research (KI) 37

38 SUMMARY Scandinavia: The Scandinavian construction and civil engineering market will grow by about 3% in 2016 and 2017, down slightly from 2015 Norway: General slowdown in the economy with regional differences, also in the construction market Public sector demand will be a driving force in the forecast period Sweden: Economic upturn and record low interest rates, also in 2016 and 2017 Broad upswing in the construction and civil engineering market Denmark: Moderate recovery in the economy with expectations of higher demand from households and business Residential market picking up 38

39 39 APPENDIX FORECASTS

40 FORECASTS Level 2015 NOK Billion 2015 Growth 2016 Growth 2017 Growth Growth rate Residential 120 3% 0% -1% 0% Private nonresidential buildings Public nonresidential buildings 51-2% -2% -2% -2% 33 3% 3% 3% 3% Civil engineering 67 3% 12% 7% 9% Total 271 2% 3% 1% 2% Housing starts No. of units Source: Statistics Norway and Veidekke 40 Legend: Unchanged forecast from EA Report September 2015 Downgraded / revised upwards the forecast from EA Report September 2015

41 FORECASTS Level 2015 SEK billion 2015 Growth 2016 Growth 2017 Growth Growth rate Residential % 5% 2% 3% Private nonresidential buildings Public nonresidential buildings 104 9% 4% 4% 4% 42 6% 5% 5% 5% Civil engineering 80 6% 2% 6% 4% Total % 4% 4% 4% Housing starts No. of units Source: Statistics Sweden and Veidekke 41 Legend: Unchanged forecast from EA Report September 2015 Downgraded / revised upwards the forecast from EA Report September 2015

42 FORECASTS Level 2015 DKK billion 2015 Growth 2016 Growth 2017 Growth Growth rate Residential 50 0% 5% 10% 7% Private nonresidential buildings Public nonresidential buildings 16-2% 3% 7% 5% 17-3% 5% 5% 5% Civil engineering 38 5% -2% -2% -2% Total 119 1% 3% 5% 4% Housing starts No. of units * Source: Statistics Denmark and Veidekke 42 Legend: Unchanged forecast from EA Report September 2015 Downgraded / revised upwards the forecast from EA Report September 2015