2016: a year of slow recovery, but continued improvements are likely in Italy in 2017-2018
CONSTRUCTION SECTOR IN ITALY: MARKET SITUATION
2016: a year of slow recovery
The way to recovery for building in Italy is proving to be slower and more uneven than expected. Signs of a turnaround in the recessionary trend that emerged in the second half of 2015 have weakened this year; in the second and third quarters, construction investments posted another slight downturn (respectively -0.1% and -0.2% of previous results).
In the light of this economic background, 2016 is expected to close with more moderate growth in investments compared to estimates in recent months (1% on average for the year). The most significant downward review concerns the civil engineering sector, given more limited impact of the measures to relaunch public investments implemented by the Government.
In particular, going against the favourable trend seen in the period 2014-2015, the public works sector in recent months saw significant down-sizing, largely in the wake of the introduction last April of the new code for public contracts. The outcome saw a slight improvement in the last period but the balance at the start of the year is still negative, down by more than 11% over the corresponding period on average for January-October.
This uncertainty arose because of the new regulatory framework that especially affected local government tenders, starting with town councils.
In line with weak demand for capital goods on the part of companies, estimates in the non-residential sector have also been reviewed downwards, which is expected to close 2016 with only a slight increase over the previous year. Residential construction continues to see a good rate of expansion (above average for the construction sector), once again exclusively attributable to the impact of investments in renovation helping to offset the further weakening as regards new homes.
Residential sector still driven by renovation
Table 1 - Building permits (number of homes, total IV quarter)
Table 2 - Investments in building renovation c/w incentives (€ billions)
Although at much slower rates, new residential building continues to suffer, as reflected in the collapse in building permits (-12.5% in 2015). Investments stimulated by tax incentives began to improve in late 2016.
Consolidation for the positive trend in the housing market
Table 3 - Residential sales (var.% on corresponding quarter)
Table 4 - Non-residential sales (var.% on corresponding quarter)
Conditions are still favourable as regards demand for housing, although mortgage loan dynamics are showing signs of a “physiological” slowdown after the boom in 2015.
The resumption in transactions also includes the non-residential property market.
Limited impact of measures to stimulate public investments
Table 5 - Gross fixed investments, public administration (current values, var.%)
Growth in capital expenditure by public administrations is estimated to be lower than previously announced; the most substantial increase will be postponed until 2017.
Delays in the application of European public investment flexibility clause (trans-European corridors, structural funds, Juncker Plan) and a slower spending by local governments (already implemented before the impact of the new public tender code).
Effect of the “new code” on public tenders
Table 6 - Tenders
The uncertainty prompted by the ratification the new code for public tenders especially impacted local government procurement, starting from local councils.
However, this negative impact seems to be progressively waning, as seen by the resumption of tender announcements in recent months.
CONSTRUCTION SECTOR IN ITALY: SCENARIO 2017-2018
Continued improvements are likely
The construction sector scenario in Italy envisages continued recovery in investments . The main driving forces will be non-residential construction, thanks to more favourable conditions as regards demand for capital goods by companies, and civil engineering works. Once the impact of the new code is overcome, there are expectations for an acceleration in public investments not only in major infrastructure projects but also in medium-sized works (school buildings, land safety) by releasing local authority budget surpluses. A further boost in the sector is likely to come from the implementation of investment programmes by Anas and RFI (road and rail respectively).
The resumption of construction is also expected to benefit from measures introduced in the proposed budget for 2017. Approved measures include the extension of tax benefits for renovations and the eco-bonus for energy upgrading of buildings (also extended to condominiums), the allocation of resources for reconstruction in areas affected by the recent earthquake and stronger incentives for seismic protection projects.
In the light these announcements, investments in housing renovation will maintain a favourable trend over the entire forecast period, while new residential will only emerge from the recession in 2018. The recovery in this segment, despite improvements in demand for housing and the property market, will continue to be held back until very high levels of unsold housing are cleared.
Gradual consolidation of the recovery
ITALY: INVESTMENTS IN BUILDINGS (% var. on annual average)
| BUILDING INDUSTRY | 2015 values € mln |
2015 | 2016 | 2017 | 2018 |
| RESIDENTIAL of which: - new - renovations |
72,831
16,459 56,372 |
0.7
-3.4 2.0 |
1.3
-2.6 2.8 |
1.0
-1.0 2.2 |
1.1
1.3 1.0 |
| NON-RESIDENTIAL | 36,952 | -2.6 | 0.3 | 1.6 | 2.3 |
| PUBLIC WORKS | 23,999 | -0.5 | 0.5 | 2.0 | 3.5 |
| TOTAL BUILDINGS | 133,782 | -0.4 | 1.0 | 1.6 | 1.8 |
Table 7 - Investments in construction and main components (var.%)
2016 is expected to close with a positive, albeit moderate trend for investments in construction; the driving force in the residential sector (thanks to incentives) is still renovation, while the so-far limited recovery in public works suffers from slow resumption in public investments.
Improvements are confirmed over the next two years, led by non-residential construction and public works, assuming a resumption in public tenders procurement after the hiatus associated with the new code, as well the positive impact of various fiscal policy measures designed to relaunch the sector.