RICS Global Real Estate Weekly

Whilst the next ECB interest rate decision is on Thursday 8th, RICS strongly doubts there will be any change at the next meeting and considers that fiscal measures are likely to hit euro area construction sector.

The key policy rate (the refinancing rate) has been on hold at 1% since May 2009.

Weaker sentiment has yet to be reflected in the hard data but confidence has already been hit and the medium term growth outlook is likely to have now been compromised.

At the euro area level, confidence in the construction sector has not been that badly affected. Indeed, the European Commission’s headline confidence indicator for the euro area has deteriorated from its post-crisis high point of -25 in April to -30 in June (the broader EU balance has deteriorated from -28 to -32 over the same period). However, the measures announced by some countries have knocked builders’ confidence much

harder.

The sharpest falls in confidence during Q2 have taken place amongst the larger countries, Italy and Spain (from -23 to -38 and from -13 to -32 respectively). The detail of the EC survey shows the main drivers of the fall in confidence were the outlooks for order books and employment in Italy, while in Spain, the outlook for (output) prices also deteriorated sharply.

This is not altogether surprising given the cuts already announced by the Italian and Spanish governments. In Italy, 24 billion euros of measures have been approved for 2011/2012 alone. Of this total, funding to local and regional authorities has been cut by around 13 billion euros, which is likely to have an impact on infrastructure spending.

Meanwhile, in Spain, 15 billion euros of cuts have already been announced for 2010/2011, 6 billion of which is planned to come from public investment. Looking forward, the construction sector across Europe is likely to come under increasing pressure as the announced fiscal austerity measures are implemented.

Joshua Miller commented:

“European sovereign debt crisis, related financial market volatility and more urgent pace of fiscal consolidation announced by euro area countries is already beginning to affect business and consumer confidence in the region.”

Laura Lindberg

Media Relations Manager

RICS Europe

T +32 (0)2 739 42 27

F +32 (0)2 742 97 48

E llindberg@rics.org

W joinricsineurope.eu/en/pressroom

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