The UK economy saw its fastest contraction since the 2008
global financial crisis in Q1 of 2020. The Office for National Statistics (ONS)
reported a 2% fall in GDP over the period. A much steeper decline in Q2 could
be expected to reflect the nationwide lockdown through April and May.
As anticipated, the data shows that construction was badly
hit, with output dropping by 2.6% during the quarter, and by 3%
quarter-on-year. Just three sectors posted positive growth, with falls driven
mainly by the slowing of housebuilding and residential repair and maintenance
work.
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Infrastructure, however, increased by 3.7% in Q1. Continued
infrastructure spend, fuelled by government commitment to key projects, also
saw new orders rising by 77.7% in Q1.
New order data is notoriously volatile, and these movements
don’t therefore necessarily predicate a trend. However, a healthy pipeline of
national and regional infrastructure programmes could provide a crucial bright
spot for construction as it weathers the storm.
With recession more of an inevitability than a possibility,
thoughts are now turning towards recovery as lockdown measures are eased across
England.
During the 2008 crash we saw a demand-led, ‘balance sheet’
recession. As asset prices fell, economies switched from investment to paying
down debt. This triggered a sharp fall in output.
The impact was significant, yet recession and recovery were
not mirrored equally across economies.
Canada avoided a banking crisis, meaning less disruption to
capital investment. This kept employment high, helping growth return to
pre-2008 trends – a ‘V’ shape recession.
An enduring credit crunch saw UK growth fall. Following
recovery, growth now runs parallel to pre-crash trends, at a lower level – a
‘U’ shape recession.
Greece never recovered; its growth rate deteriorated and the
output gap is widening – an ‘L’ shape recession.
Currently, the Bank of England expects a V-shaped recession
in the UK. While welcome, a sharp bounce back would not be without concern for
the construction industry.
Rapidly accelerating growth, coupled with restraints on
supply chain capacity and capability would impact cost and programmes
adversely.
The probability, however, is that we’re caught between a
V-shape and a U-shape, producing at a lower threshold to keep people safe, and
making a rapid return less likely. One thing that is certain is that the
further we move away from a V-shape towards an L-shape, the more construction
firms would need to brace for weakening demand.
Kris Hudson is an economist and associate director at Turner & Townsend
Image: Nikita Burukhin/Dreamstime.com
