After the modest downturn in 2005 (-0.2%), investments are expected to remain close to zero both this year (+0.3%) and next year (0%). As of 2008 a sharp reduction in investments is forecast.

Of the four powerhouses that drive the construction industry, only new residential building continues to hold strong, peaking in 2006 with constant-value growth of 4.6%. All the other engines are experiencing a downturn, with the exception of residential maintenance which is showing a very slight recovery (+0.3%). Civil engineering has contracted by 1.1%, non-residential public building by 5.5% and non-residential private building by 3.9%.

The downturn is closely bound up with the difficulties in the public sector, which up until 2004 had played a dynamic role, exhibiting growth and, together with private residential building, driving the entire sector.

Between 2000 and 2004, the civil engineering sector achieved a 30% increase in constant-value investments. The same applies to the public building sector, which returned higher percentages during the period than even new private residential building. But in 2005 the sector suffered a downturn of more than five percentage points, a factor that proved critical for the entire construction sector, given that two of the four engines had already stalled: refurbishing in 2001 and private non-residential building in 2003.

The downturn has been confirmed for 2006 and 2007, albeit with much smaller contractions (down by 1% and 1.2% respectively).

Effects on employment 47,000 fewer jobs

Driven by the long expansion cycle that began in 1998, employment in the construction sector reached peak growth in the second quarter of 2005 with 1,944,000 jobs.

This peak coincided with the highest point of the cycle. Not since the end of the Second World War had so many resources been channelled into the construction sector as in 2005, when investments totalled 153 billion euro in current values.

As of 1998 the occupational capacity of the sector increased by about 420,000 units, equivalent to 21% of Italian employment growth, with a relative increase of 28% compared to an average 8% of other activities.

In the second half of 2005 and the first few months of 2006, the situation changed. In the space of a year, the construction sector lost 4,700 jobs to reach 1,897,000.

Although it is just a single figure in a time series, the fall in numbers of jobs in the first half of the current year nonetheless provides a clear indication that the long expansion cycle in the construction sector has come to an end.

For the first time in seven years, the trend (variation over the corresponding quarter the previous year) became negative (-2.4%). This marked the end of the period of rapid growth that occurred between the second quarter of 2004 and the second quarter of 2005, during which time the increase never fell below 5% and peaks of 10% in the third quarter of 2004 and 9% in the first quarter of 2005 were reached.

Scarcity of resources and fall in number of calls for tenders in public works

After a decade of continuous growth, in 2005 investments in public works registered a significant downturn: – 1.4% at current prices and -5.1% at constant prices. This result disappointed the expectations for substantial growth in the public works market that had been fuelled by optimism following the initial effects of the Objective Law, which produced excellent results in 2004 in terms of both investments (up 11.5% on 2003 at current prices) and the competitive tender market (up 14.5%).

The perception that the situation was changing began to be felt in the second quarter of 2005 when the numbers of calls for tenders began to decline substantially, resulting in a 9 billion euro fall in expenditure (-15%) in 18 months. The value of works submitted for tendering fell from 58 billion euro registered in the period from October 2003 to March 2005 to 49 billion euro in the period from April 2005 to September 2006, while the average monthly value of tendered works dropped from 3.2 to 2.7 billion euro.

The infrastructure revitalisation policy launched by the previous government – involving the adoption of measures to simplify administrative procedures and to speed up the public infrastructure authorisation processes, including greater commitment of private capital – was not followed up by a real policy of recovering public and private liquidity.

The results of this imbalance between commitments undertaken and resources available are well known: the risk of a significant number of tendered works, signed contracts and open sites coming to a standstill if the resources necessary for correct progress of works are not guaranteed, which would have serious consequences for employment as well as giving rise to a further delay in the country’s economic development.

The first measures introduced by the new Government were to recover the primary resources required to avoid the stoppage of open sites and to prevent a substantial fall in employment as early as 2006. These measures concern in particular the Bersani Decree Law (D.L. 223/2006), art. 17 of which provides for new resources for Anas (autonomous national road company) and Ferrvie (Italian rail network operator).

Government intervention has a crucial role in the new CRESME estimates for 2006, which indicate that investments in public works are essentially holding strong, up by 2.4 percentage points at current prices corresponding to a fall of 1.7% at constant prices.

The difficulties in the public works market from 2005 onwards are confirmed by the figures on calls for tenders. In the last 18 months, from April 2005 to September 2006, public works to a total value of 2,752 million euro were tendered. In the previous eighteen months, the value of tendered works came to 3,229 million euro (excluding the bridge over the Strait of Messina).

The public works market saw a fall in calls for tender equivalent to 15% of fresh demand.

This contraction is bound to have significant effects on employment. About 400,000 people are employed in public works and the drop in demand reflected in calls for tenders corresponds to a contraction in the workforce of 60,000 units between 2006 and 2007.

Contrary to what might be expected, the fall did not concern local authorities, but principally sectors such as healthcare (-28%), railways (-30.6%), Anas and concessionaires (-63%).

The entire Italian transport system appears to be at severe risk.

The residential boom continues: 331,000 housing starts 2006, a boom in small apartment blocks.

Housing starts in 2006 totalled 331,000 and the figure is expected to increase to 334,000 in 2007. Just ten years ago such a high figure for housing starts would have been inconceivable. In order to define the current period as the third stage of expansion in the real estate system, we can resort to various statistical data which were used intuitively in previous years’ reports, appropriately supplemented and updated with more recent information.

From the beginning of the residential cycle (1999) until 2006, one and two-family buildings showed an annual average variation of 1.7%. Again between 1999 and 2006, the average annual growth of multi-family type building amounted to 11.7% overall.

Between 2002 and 2006, the trend was proportionate to the size of the building: 31.3% small buildings of up to 15 apartments; +66% buildings with more than 30 apartments. Ten years ago, in 1995, the promoters of residential building initiatives consisted, amongst others, of 55% private individuals and 32% building companies. By 2006 the number of companies had risen to 66% while the number of private individuals had fallen to 29%.

In just 5 years, from 2002 to 2006, the share of production of new housing with a useful surface area of under 75 sq. m. increased from 40% to 60%.

The share of housing with useful surface area of less than 46 sq. m rose from 6% to 16%, doubling in production in the last year alone.

Just over half of the large building initiatives are concentrated in 8 provinces.

The greatest growth in volume during the last year was in the provincial capital cities and in municipalities with more than 50,000 inhabitants.

New building: 2006 still above 300 million cubic metres

Again in 2006 total construction volumes amounted to more than 300 million cubic metres, the seventh consecutive year in which this value has been exceeded. Predictions are for the threshold to be exceeded again next year and perhaps in 2008, albeit with a slightly lower figure. In the current year various components have contributed to the total building volume of 311 million cubic metres:

o Just over 61,000 residential buildings with a total volume of about 131 million m3, 12.0% up on 2005;

o 23,200 non-residential buildings to a total of almost 135 million m3, 7.7% down on 2005;

o almost 12 million m3 of extensions to existing residential buildings (-13.6%);

o 33 million m3 of extensions to non-residential buildings (-18.4%).

To understand the historic significance of the volumes constructed in 2006 and of the corresponding invested resources, we need to consider the scale of the phenomenon and its variation with respect to previous years. This year’s figure amounts to a total of 311 million m3 of new construction, which in monetary terms corresponds to an economic and financial commitment of more than 64 billion euro. Direct employment is estimated at almost 740,000 workers, along with about 370,000 workers in allied sectors (deriving from intermediate costs in creating the finished product: services provided to companies and production materials). The year 2006 has seen the highest figure for new building investments in a quarter of a century. Similar figures had not been recorded since the end of the 1970s.

Furthermore, if we analyse the data translated into overall construction costs, we find ourselves in the longest upward phase in the last 25 years: eight years if we discount the small dip in 2003 caused by the introduction of legislation on reuse of company profits. This is longer than the five year growth period of 1988-1992 which accounted for a total volume of 2.7 billion m3. This means: 46 m3 per inhabitant or 8,900 m3 per km2 of national land surface (more or less one 25 home building), or 26,000 m3 per km2, if calculated excluding agricultural land and woodland (more or less a complex of 70 apartments).

Newly constructed non-residential building: 16% fall in volumes between 2003 and 2006.

After peaking in 2002, non-residential building has continued its downturn and in 2006 showed a 7.7% fall in completed volumes, from 146.1 to 135 million cubic metres. The downturn is particularly evident in the industrial sector with a fall from 86 million to 78 million cubic metres.

The estimated volume that will be completed in 2006, 135 million m3 , is even lower than the minimum of 1995. The new non-residential sector performed strongly in 2002 and in 2003. Taking account of the expansion projects, in 2002 the overall volume of construction reached 249.5 million m3, followed by 203.4 million m3 in 2003 and ultimately reaching the current figure of 167.7 million m3.

The contractions display a fairly clear geographical distribution with sharp falls in the North West and North East, modest growth in the central regions, an almost stable trend in the south and strong growth in the islands. The North East in particular appears to have experienced a sharp fall in construction volumes in 2006 (-29.7%), considerably aggravated in the industrial sector (-44%) and above all by the downturns experienced in the previous years: -17% in 2004 and -26% in 2005. The downturn in the North West this year is -10.6%, largely attributable to the industrial sector and the commercial and tourism sector. In the central regions (the province of Rome in particular) the slight growth of 2006 (+1.8%) appears to be a continuation of that of 2005 (+5.1%) driven by the industrial and above all the tertiary sector. On the other hand southern Italy and the islands showed a strong performance with stability estimated in the South (up 0.2%, although the variations were more positive in the previous years: +3.9% in 2004 and +5.7% in 2005) and an excellent trend in Sicily and Sardinia: 7.5% in 2006, +21.9% in 2005 and +11.8% in 2004. In other words it appears that the focus of this building is shifting towards the central and southern regions, partly offsetting the crisis in the north.