Good times continue to roll for construction industry

The Swiss construction industry is still living in a parallel universe compared to the rest of the country’s economy - although the good times may not last.

A report issued on Thursday by Credit Suisse and the Swiss contractors’ association (Schweizerischen Baumeisterverband) shows the industry in the in the pink of condition.

The bank’s construction index, compiled from a mixture of data, including building permits and orders, rose 13 points for the first quarter of 2010 from the same period a year earlier to reach a historic high of 132.

The index, with a base of 100 established in 1996, was eight points higher than in the final quarter of 2009.

A graph shows the index rising steadily for the past decade, powered by strong housing starts and healthy doses of public infrastructure, such as road and railway works.

Activity in the construction sector “is still at a very high level,” Christian Kraft, from Credit Suisse Economic Research, told Swisster.

While national jobless levels rose, the number of people employed in the sector, which registered annual turnover of 53 billion francs in 2008, rose slightly to 305,000 at the end of 2009, compared to a year earlier.

“We see a very long lag time in the construction sector,” said Kraft, who noted the industry was performing in an “anti-cyclical manner”, given the recent slowdown in the rest of the Swiss economy.

But while business remains good for construction firms the industry “we nonetheless expect a decline this year,” he said.

Kraft said he anticipated activity in the housing sector, which accounts for 45 percent of Switzerland’s overall construction business, to slow down along with a forecast drop in immigration and the likelihood of higher interest rates.

Credit Suisse estimates the number of housing starts to drop to 41,000 this year from 45,000 in 2009.

Secondly, “civil engineering moved to a very high level and we are sceptical that further increases of public spending into infrastructure will be in line with upcoming consolidation programs of public spending,” Kraft said.

The value of public infrastructure construction work rose at a level of about 10 percent in the current quarter from the fourth quarter of 2009, according to the Credit Suisse report.

Current such projects include the Bahnhof Löwenstrasse scheme to improve local rail traffic in Zurich, the ongoing multi-billion-franc St. Gothard railway tunnel project under the Alps, and various road improvements such as the A-5 Highway project near Bienne (canton Bern) and the A-9 Highway between Visp and Sierre (Valais).

Other long-term projects are getting under way such as the 1.5-billion-franc CEVA railway project in Geneva and the A-16 Transjurane highway, an 85-kilometre link between Bienne and the French border via the Jura that is almost 60 percent finished.

(The federal government announced on Thursday that it plans to spend 2.1 billion francs in 2010 on highway projects).

Industrial and commercial construction has also ticked upward, a phenomenon Kraft puts down to a “correction” from an earlier slowdown.

Given the state of the overall economy “we don’t see this as a long-term trend,” he said.

The construction index is forward looking, anticipating work to come in the next few months, but some projects will have been delayed by the harsh winter, Kraft said.

As a result, much of the activity anticipated by the index through order books will be accomplished in the second quarter, he said.