The decline in construction output moderated in the fourth quarter of 2011, dropping by 12.6% compared with the same period of the previous year, after a fall of 16.2% in the third quarter.
One reason for the slower decline was doubtless the effect of the Mari blast in July 2011, which knocked out the main power station. As part of general efforts to conserve limited power supplies, the construction industry downed tools for the whole of August instead of the usual two weeks.
This would have had a negative impact on the figures for the third quarter.
However, after more than two years of deep recession in the sector, which alone has added more than 4,600 to registered unemployment numbers since the beginning of 2009, there might also be some hints of light.
The main reason to be hopeful is that the subsector of building construction declined by “only” 10.9% in the fourth quarter. This is slower than the pace of decline for the whole of 2010 and for all but the first quarter of 2009.
It is also not that much worse than the decline of 10.3% recorded in the second quarter of 2011—the three month period before the Mari blast.
The relative improvement in building construction helped offset a fall in civil engineering, which fell by 16.2% in the last quarter of 2011. This was even steeper than the 10.6% recorded in the third quarter and presumably reflects the end of the major road improvement programme.
However, it might also reflect the efforts of the former Minister of Communications and Works, Erato Kozako-Marcoulli, who pushed through an increase in the implementation rate of public works programmes.
This little ray of optimism has to be tempered, however, by a continued decline in building permits, a leading indicator of economic activity, which declined in the fourth quarter by 18.1% over the year earlier, compared with a drop of 14.3% in the third.
It seems that we still have some way to go before construction will actually grow again.
Meanwhile, for building construction at least, construction output prices have been declining, falling by 0.9% over the year earlier in the fourth quarter. Construction materials prices rose in the same period by 4.1%, meaning that profit margins would have been squeezed unless the construction sector managed to hire cheaper labour. The rapid rise in construction unemployment suggests that cheaper labour was found from abroad.
Companies lucky enough to be working on civil engineering projects, on the other hand, saw output prices rise by 3% over the year earlier and by 4.5% for the whole year.
One wonders if the government’s desire to keep people employed led it to overpay for all those new roads. Alternatively, it might show that companies who work for the government have higher costs because they abide by all the rules, hiring properly qualified people and paying social insurance on all their labour.
Fiona Mullen
Director, Sapienta Economics Ltd
