There is disagreement over where output growth is heading in 1999, but some sectors are sure to feel the pinch. Forecasters and industry chiefs give their views on what's in store.
It's a scary thought, but the only thing standing between the construction industry and recession in 1999 appears to be frugal Gordon Brown. The industry's leading economists believe that increased spending in the public sector will be construction's saviour as it faces what most agree will be a difficult 1999.

A range of predictions makes it hard to get a grip on what lies ahead, but construction watchers have been falling over themselves to tone down their early predictions following a series of setbacks in 1998, most linked to instability in the world economy.

Economists generally agree that after a good three years, the private sector, which has been the powerhouse behind UK construction growth, is about to go off the boil. The reasons for this are the expected fall-off in consumer confidence, combined with the drop in inward investment caused by global economic blues.

Construction Confederation economist Chris Nicholls predicts growth of between 0.5% and 1% in the industry. "I think the year is going to be difficult for construction," he says. "I wouldn't rule out the possibility of a recession, but it definitely won't be on the scale of the early 1990s." Both Nicholls and the 精东影视 Material Producers agree that government spending 鈥� including the private finance initiative 鈥� is the industry's great hope. The rush to finish millennium projects, the effects of devolution and the spread of PFI are all good reasons to be bullish about the public sector, they argue.

BMP economics director Allan Wil茅n predicts a 0.5% growth in construction output, jumping to 1.5% in 2000. He warns that 1999 is going to be tough. "It is essential that the government delivers, otherwise we are looking at a recession in the industry." Martin Hewes of forecaster Hewes & Associates is more pessimistic, predicting a 1% decline. He agrees that the public sector is going to become more important, but does not expect it to take up all the slack of the declining private sector. "The government traditionally accounts for about 35% of workload," he says. "If you rely on that, you're on a sticky wicket to begin with." This year's forecasts range from Cambridge Econometrics' 1.5% decline to Nicholls' rise of between 0.5% and 1%. All of them lag behind the Treasury's forecast of up to 1.5% growth in the economy as a whole.

As for 2000, the consensus is that there will be a gradual recovery. Says Nicholls: "The public sector is still going to be a pretty good area. We should also see some of the private sector coming back. A 'nervous recovery' might be the best way to describe it."

Sector by sector

Housebuilding

  • Housing starts to dip as confidence falls

  • Fears of recession may hit starts further

Prospects in the private housebuilding market look less positive than in 1998. After a good two years, the main factor working against the market is the loss in consumer confidence. It remains to be seen whether three interest rates cuts in succession 鈥� making houses extremely affordable 鈥� will offset the decline.

John Stewart, an independent housing economist, accurately predicted 1998's starts at 153 000. He now predicts a shallow drop to 150 000 starts in 1999, bouncing back to 160 000 in 2000. "I'm probably a bit more optimistic than most," he says. "The optimism is based on the return of consumer confidence that followed November's interest rate cut. The only thing that can affect that is a recession, and I don't see it happening. The UK economy won't be going into hibernation next year." The most bearish outlook comes from Martin Hewes of Hewes & Associates, who predicts a drop to 140 000 starts.

In the public sector, construction analysts are hoping that the government's 拢800m in capital receipts will come through. And the BMP's Wil茅n says: "There is more cheer in the public housing sector because of the capital receipts initiative. Unfortunately, local authorities have taken a long time to draw up their plans and get action on the ground. We think it will start coming through." The consensus is that the housing repair and maintenance market will be hit by declining consumer confidence.

Commercial

  • Sector set to be buoyed by work in hand

  • Output expected to decline in 2000

The commercial sector looks a mixed bag. Wil茅n expects office output to rise because of the large amount of work in the pipeline. "Looking further forward, I don't think the flow-through of projects will continue," he says.

He expects the leisure sector to remain strong, but predicts a slower retail sector.

Likewise, Hewes believes work already planned should keep the market reasonably buoyant this year, with decline beginning in 2000.

Repair and maintenance

  • Slowdown expected as confidence declines

Opinion on this sector is mixed. Hewes predicts a slight slowdown in growth from 2.5% in 1998 to 1% in 1999, with it bouncing back to 2% growth in 2000. "We see it growing every year, mostly on the back of increased public sector spending," Hewes says. The Construction Confederation's Nicholls says it is an important weather vane for the industry. "It's the sort of spending that tends to get switched off as soon as things get tight. We are predicting a decline in 1999."

Civil engineering/infrastructure

  • Decline of 7% expected following spending cuts

Again, prospects depend on the government. The decimation of the roadbuilding programme in recent years has been offset to some extent by growth in the rail infrastructure and water industries.

Matthew Ward, industrial economist at Cambridge Econometrics, says John Prescott's transport review 鈥� although hard on the roads sector 鈥� has improved infrastructure works prospects in areas such as rail.

Hewes is much more pessimistic, predicting a 7% decline in the market. "The Channel Tunnel Rail Link is a good prospect," he says. "But the effects of that will be offset by the Jubilee Line Extension finishing up."

Where to next?

Jim Armstrong, Laing The chairman of Laing Limited and finance director of Laing is working on the basis of a growth rate in construction output of between 1.5% and 2%. 鈥淭he market in 1999 looks slower, with the possibility of a slight recession. There will be an ongoing impact on orders into 2000. That said, the order book is still strong and we are well placed going into the year,鈥� he says. Armstrong expects the private finance initiative, education and rail sectors to grow in 1999. Malcolm Paul, WSP The consultant鈥檚 finance director says there is still a substantial amount of work in the pipeline. 鈥淭here鈥檚 no black hole. We aren鈥檛 going to fall as we did in the early 1990s. But there is a decline. Tenants will take a step back and wait, instead of going into new buildings.鈥� Robert Warner, Aukett Associates The architecture-led multidisciplinary practice鈥檚 finance director is suspicious of economic forecasts, but has taken heed of predictions of a slowdown. 鈥淲e are very busy at the moment and our order book is good,鈥� he says. 鈥淲e are cautiously optimistic about prospects. If there is a recession, logic would certainly suggest that it will not be as bad as 1990 and 1991, which were tough years for our company.鈥� Marco Goldschmied, Richard Rogers Partnership Rogers鈥� managing director predicts 鈥渦ncharted choppy waters鈥� as the UK copes with the effect of the euro and the threat of recession in 1999. 鈥淚 see two large forces at work 鈥� the effect of lower interest rates and the loss of consumer confidence. It will be interesting to see whether the two cancel each other out. 鈥淚 think those with the courage to build in 1999 will find some good opportunities on offer.鈥� Alastair Collins, Davis Langdon & Everest The partner at QS DL&E is expecting a decline in some sectors, but not a wholesale recession. 鈥淚 think recession is too strong a word for what we are going to see. What is definite is that there will be a reduction in construction activity. I think there will be a sensible slowdown rather than the across-the-board plunge we saw in the early 1990s.鈥� He is expecting growth in spending in the health and education sectors on the back of increased private investment.