CS: New Construction Index Signals Turning Point in Swiss Construction Industry

A large volume of civil engineering work has maintained the momentum of the industry as a whole so far, but in the long run, civil engineering won't be able to take up the increasing slack in structural engineering, and the entire construction industry will be gripped by a downturn. Construction activity in Switzerland did in fact decline again in the fourth quarter. These are the findings of the new Swiss Construction Index, which today saw its public launch. The results of a venture between the economists of Credit Suisse and the Swiss Contractors' Association, the Swiss Construction Index provides a snapshot of the economic state of Switzerland's construction industry, thus closing a gap in the provision of economic data.

Due to its size and focus on the domestic economy, the construction sector provides a strong stimulus for the Swiss economy and is in fact a dominant economic sector in numerous cantons. With about 290,000 employees, the industry employs 30% of the secondary- industry workforce and contributes 5% of national value creation. The newly launched construction index from Credit Suisse and SCA forecasts sales in Switzerland's structural engineering segment in the current quarter and will display emerging trends. It will thus be a significant indicator of Swiss building-sector trends in the future. New Indicator Improves Transparency in Construction Sector

The real estate market often used to be hampered (sometimes seriously so) by a lack of data on the Swiss construction market, or by data that was incomplete or not properly transparent. As appropriate indicators did not yet exist, undesirable developments (such as those leading up to the real estate crisis of the 1990s) were often not identified until it was too late, which resulted in misallocated investments. Although the information situation has improved, it is still difficult – given the diversity of individual data and often contradictory trends in the building sector – to form a clear picture of business trends in the construction industry. Moreover, the signals from previously available indicators have been mixed.

The new index should help to alleviate these shortcomings. The Swiss Construction Index provides interested parties with at-a-glance information on the state of business in the construction sector and its various sub-sectors and thus helps to make construction more transparent. Being an indicator that is "real-time" or slightly leading, the index not only delivers very up-to-date figures for structural engineering but also provides some pointers to future developments in this sector. Construction Industry Gradually Running Out of Steam

The new Construction Index allows us to track the construction industry's ups and downs over the last few years. While growth was initially steady at the end of the 1990s, it then slumped in 2001 after the dotcom bubble burst. In 2003, low interest rates boosted the industry's recovery, and it became one of the drivers of the last boom. Thanks to vigorous residential construction activity (driven by high immigration), this momentum was sustained for a long time – even though commercial construction was hit in 2008 by the outbreak of the financial and economic crisis.

In the last few quarters, the index has been seeing much more volatile fluctuations: After sustained signs of weakness in structural engineering, the construction industry has been increasingly sustained by volatile civil engineering projects; due to the high level of capacity utilization in civil engineering, however, it will be difficult to maintain the present tempo. The engine driving the building industry will start sputtering once civil engineering experiences a downturn, as no construction segment will have sufficient impetus. Construction Index Suffers Second Fall in Succession in Q4 2009

In terms of the index, the construction industry is heading for a second fall in succession in the final quarter of 2009. The index for nominal seasonally adjusted construction volume had climbed to almost 130 by the second quarter of this year (1996 = 100). But now, consolidation of civil engineering activity combined with the problems in the structural engineering segment (which has been ailing for some time already) has dragged the index down to 124 points. A recent surge in residential construction has temporarily curbed the index's decline. But sharp falls in planning applications and building permits for residential properties can soon be expected to have an even greater impact on new orders in the structural trades, thus causing the structural engineering index – one of the central components of the Construction Index – to finally nosedive. Information on the Construction Index

The Swiss Construction Index is published jointly by Credit Suisse and the Swiss Contractors' Association (SCA) each quarter. The indicator is based in part on a periodic survey conducted by the SCA among its members. Detailed region-by-region figures and extensive analysis of the third quarter of 2009 can be found in the SCA quarterly statistics published on December 2, 2009.

Subscriptions to the Construction Index are available from Credit Suisse: bauindex.economicresearch@credit-suisse.com

Detailed results of the quarterly SCA survey, which follow within a week of the Construction Index, are available from the SCA on request. For facts and figures on the structural trades, visit www.baumeister.ch/zahlen-und-fakten.