‘Robust’ building sector lags downturn, experts say

The message this week from Holcim sounded positively upbeat about the Swiss-based global cement company's business in its home country.

In a statement on Wednesday, the company listed on the Swiss Market Index (SMI), said that throughout 2009 Holcim Switzerland continued to benefit from “robust construction activity”.

Due to extensive cost-cutting, Holcim was able to report global profits of 673 million francs for the third quarter of 2009, unchanged from the same period a year earlier.

“Order volume remained at a high level, particularly in the large conurbations,” the company said. “Cement and ready-mix concrete sales virtually reached the previous year's level, and the company sold more aggregates.”

Holcim benefited from a strong performance in Switzerland, in addition to an uptick in the construction industry in North America and in the two European economies which have shown some growth in the last quarter: France and Germany.

The Swiss Cement Association (Cemsuisse), based in Bern, reported last month that Swiss cement deliveries in the third quarter of 2009 were up 4.8 per cent on the same period last year, while the first 9 months of the year saw an increase of 1.2 per cent on 2008.

In a phone interview with Swisster, Holcim spokesman Peter Gysel confirmed that most of the company's cement produced in Switzerland is for domestic use rather than exports.

This would suggest solid activity in the construction sector and a good sign for the overall health of the Swiss economy.

But various sources agree that these are not indicators of imminent recovery from the downturn and that the construction industry may be lagging the economy as a whole.

Holcim’s outlook for Europe predicts that “the markets will remain challenging for a longer period”.

Gysel said it was company policy not to comment specifically on one country’s prospects and would not say whether the healthy Swiss sales figures were likely to continue.

Cemsuisse said that the recessionary environment felt in other areas of the economy may not yet have broken into the cement and construction sectors, which are associated with longer-term investments.

The association predicted a slight decline towards the end of 2009. Rudolf Minsch, economic analyst at the Swiss trade and industry association, economiesuisse, concurred.

“We expect a small decline in the construction sector,” he told Swisster.

The latest gross domestic product (GDP) forecasts include a prediction from the Swiss Economic Institute of negative growth for 2009 at -3.4 per cent, against a more optimistic estimate from Seco, the federal government’s economic secretariat, of -1.7 per cent.

The price of goods has fallen as a result of declining economic activity, with a basket of products costing 0.8 per cent less than last year.

And Seco data published last week showed that unemployment increased from 3.9 per cent in September to four per cent in October. Some observers expect this figure to reach six percent by 2011.

Alessandro Bee, an economist with Bank Sarasin, told Swisster that the Swiss housing market has not  experienced the strong impact seen in other sectors of the economy.

“Residential investments held up in the recent crisis due to the healthy condition of the Swiss housing market,” he said.

The residential sector has benefited from strong immigration in recent years, in addition to the continuing low-interest rate environment.

The sector is credited with helping the Swiss economy throughout 2009. Bee expects interest rates  to remain low, something he said would continue to shore up residential investments in the next quarters.

Sarasin believes “the recession will probably leave its mark on commercial real estate,” he said.

Bee thinks the driving force for the Swiss economy will come from consumption, but this will drag due to rising unemployment and flat 2010 wages.

Sarasin is “rather cautious for the domestic economy” even though the latest figures on labour market and consumer sentiment have been “encouraging”. The driver for the Swiss economic recovery will be exports, he added.