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The impact of the business cycle on the construction companies’ sector in selected states

The impact of the business cycle on the construction companies’ sector in selected states. Rafal Wolski Magdalena Zaleczna. Introduction.

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The impact of the business cycle on the construction companies’ sector in selected states

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  1. The impact of the business cycle on the construction companies’ sector in selected states Rafal Wolski Magdalena Zaleczna

  2. Introduction After the strong increase in economic activity, which in many countries was connected with the boom in the real estate market, the activity was rapidly reduced also within the broadly understood construction sector. This contributed to the slowdown of the growth rate or the economic downturn. Authors have undertaken the analysis of impact of business cycle on conditions of residential real estate markets and the construction sector in selected European states.

  3. Theresearchquestions: • Authorssearched for an answer to the questions: • how much residential marketsreacted for theeconomicslowdown, • how much the construction sector and the enterprises changed their activity in the recent years. For the purpose of the analysis a database of over 99274construction enterprises from the Czech Republic, Poland, Slovakia, Hungary, Ireland and Spain was created.

  4. Business cycle and construction sector • The economic revival and the boom in the real estate market in the years 2000-2008 were strictly related. In some countries the increased activity of the construction sector, significantly involved in the residential market, played an important role in those processes. These countries include: Ireland, Spain and Cyprus, and among the post-socialist states – the Baltic States and Croatia [Sun, Mitra, Simone 2013].

  5. Business cycle and construction sector • On the eve of the crisis, in 2007, according to Eurostat data, the construction sector of the EU states gave employment to 14.8 million employees (11.5% persons employed in non-financial sectors) and provided EUR 562 billion in value added (9.3% of total value added brought by non-financial sectors).

  6. Business cycle and construction sector • In 2010, the employment in the construction sector in the EU states amounted to 13.4 million (10% persons employed in non-financial sectors), and the value added generated by that sector amounted to EUR 496 billion (8.4% of the total value added generated by non-financial sectors).

  7. Business cycle and construction sector • The largest part of the sector, concerning construction of buildings, clearly felt the effects of the crisis – the comparison of the beginning of 2007 and 2010 indicates a drop in activity by 16.5%. The only country which did not show a decrease was Poland.

  8. Share of the construction sector in the generation of GDP in selected countries (%). Source: own study based on data from the European Construction Industry Federation

  9. The construction sector structure in the analysedcountries - a great majority of enterprises in this sector are small entities, employing up to 9 people • Czech Republic Poland Slovakia • (data in thousands)

  10. Hungary Ireland Spain • (data in thousands)

  11. Changes in the level of employment in construction in the years 2003-2012 (%).Source: own study based on data from the European Construction Industry Federation

  12. Value of construction output in the years 2003-2012 (EUR million). Source: own study based on the Eurostat data.

  13. New residential units in the years 2003-2012 and changes of prices in the housing market in the years 2003-2012 (%) in the Czech Republic and Poland

  14. New residential units in the years 2003-2012 and changes of prices in the housing market in the years 2003-2012 (%) inSlovakia and Hungary

  15. New residential units in the years 2003-2012 and changes of prices in the housing market in the years 2003-2012 (%) inIreland and Spain

  16. Data • 99274 companies (5416 from Czech Republic, 7927 from Poland, 2798 from Slovakia, 15385 from Hungary, 7900 from Ireland and 91374 from Spain) • Period: 2003 to 2012 • Financialdata are derived from the Amadeus database. Data on GDP at market prices, denominated in euros, derived from the database Eusostatu • Companiesin the sector marked by Eurostat NACE Rev. 2 - statistical classification of economic activites in the European Community with codes: 4110 - Development of building projects, 4120 - Construction of residential and non-residential buildings.

  17. The Pearson correlation between GDP and the subsequent selected balance sheet positions

  18. Construction enterprises’ results In general the profitability ratio like ROE or ROA stayed positively correlated with real GDP growth rate - volume percentage change on previous year.In all cases, except Hungary, the correlation was statistically significant. There is pone case which drew attention: Poland. Positive correlation with a GDP growth that is also positive means that companies noted slower development, but not recession. The results indicate a strong dependence of the sector from the whole economy. And almost all the countries surveyed, with the exception of Hungary.

  19. Conclusions: • The residential marketsactivitychangedinanalysedpost-socialiststatesinmoderateway: • - the growth and decrease of newresidentailunits • number was moderate • - theincease of prices was dynamic and thefall was not • deep • Thecase of Ireland and Spain was different: • - the growth and decrease of newresidentailunits • number was extremely high • - thechange of prices was dynamic and • thefall was high

  20. Conclusions: • The construction sectoranalysed by thechangesinemployment, number of construction enterprises and value of construction outputindicates Poland as a country withthebestsituationin construction sector; • Ireland and Spainarecountrieshavingdramaticallydecreasing construction sectoractivity; • the financial condition of enterprises inpost-socialistcountriesisquitegood, but in Ireland and Spainthesituationseemed to be quitedramatic.

  21. Thankyou for yourattention

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