Slide 1: Veidekke Economic Activity Report
VEIDEKKE ECONOMIC ACTIVITY REPORT: 7 March 2016 Kristoffer Eide Hoen
Slide 2: New era in Scandinavia?
NEW ERA IN SCANDINAVIA? Estate agent specialising in holiday homes: “Swedes and Danes are paying the most Weak Norwegian krone: Petter Birkrem sees a new trend Facsimile from the Norwegian financial newspaper Finansavisen, 18 February 2016 2 09.03.2016
Slide 3: Greatest income growth in Sweden
GREATEST INCOME GROWTH IN SWEDEN REAL ANNUAL WAGE GROWTH IN 2015 (%) 3 2.3 2 1.6 1 0.5 0 Source: Norges Bank, the Norwegian Technical Calculation Committee for Wage Settlements (TBU), the Swedish National Institute of Economic Research (KI) and the Swedish Ministry of Finance 3 09.03.2016
Slide 4: New exchange rates – especially from a Norwegian perspective
NEW EXCHANGE RATES – ESPECIALLY FROM A NORWEGIAN PERSPECTIVE - 8% - 8% 130 125 125 120 115 115 - 9% 110 105 100 - 24% 100 95 93 90 NOK/SEK NOK/DKK Q4 14 Q4 15 Source: Norges Bank 4 09.03.2016
Slide 5: Contents
CONTENTS Economic trends • Regional differences in Norway Forecasts for 2016 and 2017 Key market areas: • The residential market in key regions • Private non-residential buildings – mixed outlook • Expansive public sector 5 09.03.2016
Slide 6: Economic Activity Report – background and methods
VEIDEKKE'S ECONOMIC ACTIVITY REPORT: – BACKGROUND AND METHODS Veidekke's Economic Activity Report shows the Group's forecasts for developments in the Scandinavian construction and civil engineering market in 2016 and 2017 Economic forecasts (GDP, employment, consumption, etc.): • Estimates based on
Slide 7: Economic growth – Sweden leading the way
ECONOMIC GROWTH: – SWEDEN LEADING THE WAY Norway: weaker outlook Sweden: heading for an upturn Denmark: moderate growth - Zero growth in Q4 2015 - Peak at 4% in 2016 - GDP weaker than expected in 2015 - 1–1.5% in 2016 and 2017 (?) - Growth will slow down, but remain high - Close to 2% growth in 2017
Slide 8: Interest levels < 0
INTEREST LEVELS < 0 Historically low interest rates during the forecast period • Sweden: moderate rise in interest rates from the 1st half of 2017 • Norway: towards 0% in 2016 • Denmark: possibility of interest rate rise in 2017 Source: Norges Bank, Danish National Bank, the Riksbank 8 09.03.2016
Slide 9: Labour market – differing trends
LABOUR MARKET: – DIFFERING TRENDS Norway: Moderate, with gradual slowdown Sweden: Positive development Denmark: Positive development - Increasing regional differences - High growth projections for employment - Employment growth remains good - Unemployment is 4.5% and rising - Unemployment is 7.0% an
Slide 10: Capacity utilisation declining
CAPACITY UTILISATION DECLINING Share of companies with challenges in finding labour force: The slowdown started before the fall in oil prices in summer 2014 Generally lower capacity utilisation Greatest change in the south-west and north-west Source: Norges Bank 10 09.03.2016
Slide 11: Dependency on the oil industry is an important explanatory factor
DEPENDENCY ON THE OIL INDUSTRY IS AN IMPORTANT EXPLANATORY FACTOR Employees in oil-related businesses Directly and indirectly, share of total employment in 2014 40% 40% 30% 21%21% 20% 17% 13%13% 10% 9% 8% 8% 8% 7% 10% 6% 6% 5% 3% 3% 2% 1% 1% 0% IRIS's calculation of oil-related employment: Registere
Slide 12: Regional differences: inverse development
REGIONAL DIFFERENCES: INVERSE DEVELOPMENT Employment growth in 2015 vs. 2010–2014: Annual growth (%), selected counties 4% 3.0% Regions dependent on the petroleum 2.6% 3% 2% 1.7% 1.9% 2.1% 1.6% industry had strong growth until 2014 – 1.0% 1% 0,0 % necessary downward adjustment now? 0% -1% -0.4% Coun
Slide 13: Regional differences: inverse development
REGIONAL DIFFERENCES: INVERSE DEVELOPMENT Regions dependent on the petroleum industry had strong growth until 2014 – necessary downward adjustment now? Counties that have been in the "shadow" of the oil industry since the financial crisis are experiencing better times: • Cause: Weak exchange rate, t
Slide 14: Regional differences: inverse development
REGIONAL DIFFERENCES: INVERSE DEVELOPMENT Regions dependent on the petroleum Hydro to build factory on Karmøy Largest industrial investment in Norway in over ten years industry had strong growth until 2014 – necessary downward adjustment now? Counties that have been in the "shadow" Competitive labou
Slide 15: Resale housing market – controlled slowdown so far
RESALE HOUSING MARKET AS AN INDICATOR – CONTROLLED SLOWDOWN SO FAR February 2016 Growth (%) Last 3 months Last 12 months Last 5 years Oslo 3.5 8.1 40.5 Bergen 1.6 3.6 32.4 Trondheim: 2.3 2.8 35.2 Stavanger -0.4 -7.4 7.7 Kristiansand 1.4 1.6 6.2 Norway 2.8 4.4 29.5 Source: The Norwegian Real Estate A
Slide 16: Prognoses for construction and civil engineering in 2016–2017
PROGNOSES FOR CONSTRUCTION AND CIVIL ENGINEERING IN 2016–2017 1609.03.2016
Slide 17: Investments in construction 2015
INVESTMENTS IN CONSTRUCTION 2015 NOK BILLIONS 25% Residential 120 50% 137 60% 60 Private non- 51 19 residential buildings 100 Public non- 33 41 18 residential buildings 40% 40% Civil engineering 67 60% 77 40 Total 271 Total 355 Total 137 Source: Veidekke, Statistics Sweden, Statistics Denmark, Stati
Slide 18: Construction investments in Scandinavia 2000–2017
CONSTRUCTION INVESTMENTS IN SCANDINAVIA 2000–2017 Annual growth (%) NOK billion* per year (2013 prices) 450 10,0 % 400 +4%** 3.4% 3.2% 350 5,0 % 300 +2%** 0,0 % 250 -5,0 % 200 +4%** 150 -10,0 % 100 2015e 2016f 2017f 2013 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014 50 2000 2001 2
Slide 19: Norway: public sector driving the growth
NORWAY: – PUBLIC SECTOR DRIVING THE GROWTH Investments in the construction and civil engineering market Fixed prices, NOK billion (2013) Weak growth in residential 120 0%* buildings, decline in private 100 non-residential buildings 80 +9%* 60 Public sector will drive growth -2%* 40 +3%* Total invest
Slide 20: Sweden: continuing growth
SWEDEN: – CONTINUING GROWTH Investments in the construction and civil engineering market Fixed prices, NOK billion (2013) 160 The residential market is +3%* limited on the supply side 140 120 +4%* 100 Expansive public investment 80 +4%* budgets 60 40 +5%* Total investment growth: 20 - 4% in 2016 and
Slide 21: Denmark: 2015 was disappointing, slight improvement in 2016 and 2017?
DENMARK: – 2015 WAS DISAPPOINTING, SLIGHT IMPROVEMENT IN 2016 AND 2017? Moderate growth in private 70 segments 60 +7%* 50 State and local authorities 40 0%* are cutting back 30 – Although growth in hospitals and 20 universities +5%* 10 - Total investment growth: 2014e 2015e 2016f 2017f 2000 2001 200
Slide 22: Forecasts for the construction sector
FORECASTS FOR THE CONSTRUCTION SECTOR INVESTMENTS 2015 2016 2017 2015 2016 2017 2015 2016 2017 NOK bill. growth growth NOK billion* growth growth NOK bill. * growth growth Residential 120 0% -1% 137 5% 2% 60 5% 10% Non-residential 51 -2% -2% 100 4% 4% 19 3% 7% buildings private Non-residential 33 3%
Slide 23: Central market conditions
CENTRAL MARKET CONDITIONS 2309.03.2016
Slide 24: 1. Strong demand for homes in the central regions
1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS
Slide 25: Strong demand for homes in the central regions – demand
1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS – DEMAND +5%** +5%** +6%** +17%* +13%* +9%* +2%** +5%* +11%* +5%** +6%** +3%** +13%** +7%* +3%* +11%* Demand has remained good Double-digit growth in price (and activity Prices back to 2007-levels (nom.) levels) * Last observed 12 months. ** Average
Slide 26: Strong demand for homes in the central regions – activity
1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS – ACTIVITY 50 19 2828 Controlled slowdown? Levelling off after strong growth? Prospects of a moderate upturn Source: Veidekke, Statistics Norway, Statistics Sweden, Statistics Denmark and the Danish Construction Association Legend: 26 09.03.2016 Red
Slide 27: Strong demand for homes – grounds for concern?
Source: Finance Norway (FNO) (Norway), Swedbank (Sweden) and the Danish Financial Supervisory Authority (Denmark) 1. STRONG DEMAND FOR HOMES IN THE CENTRAL REGIONS – GROUNDS FOR CONCERN? Market psychology Buying power in Gothenburg and Access to credit being tightened Stockholm * Swedbank's "Boindex
Slide 28: 2. Private non-residential buildings – mixed outlook
2. PRIVATE NON-RESIDENTIAL BUILDINGS – MIXED OUTLOOK 28 09.03.2016
Slide 29: Private non-residential buildings – mixed outlook
2. PRIVATE NON-RESIDENTIAL BUILDINGS – MIXED OUTLOOK Continuing decline Continued broad growth Many vacant premises slowing the • Offices: • Offices: trend • Increased vacancy • Employment increasing, interest • Offices: • Low employment growth rates low • Positive forces, but ... • Shops: • Shops:
Slide 30: Tighter credit conditions for businesses
TIGHTER CREDIT CONDITIONS FOR BUSINESSES -41 -33 -80 Explaniation: Index from -100 to +100. A value of -100 signals that all banks i strongly thightening credits constraints and vica versa. A index of 0 signals no changes in 30 09.03.2016 credit constraints.
Slide 31: 3. Expansive public sector
3. EXPANSIVE PUBLIC SECTOR 31 09.03.2016
Slide 32: Transport: many major projects out for tender in 2016–17
National road Rv 83 Harstad tunnel National highway E6 Sjømanskirka National highway E6 Mørsvikbotn – – Ornes National highway E10 Evenes – Ballangen Gullesfjord TRANSPORT: Many major projects out for tender in 2016–17 County road Fv 17 Steinkjer – Namsos Trønder- og Meråker rail The projects compri
Slide 33: Expansive public sector – Norway
3. EXPANSIVE PUBLIC SECTOR – NORWAY Investments in the civil engineering market Fixed prices NOK (2013 rate) 45 The Government Petroleum +13%* 40 Fund, worth NOK 7,000 35 billion, provides a buffer 30 - In the forecast period 25 +3%* 20 +1%* 15 Investments in public 10 +25%* 5 infrastructure will co
Slide 34: Operation and maintenance of roads and railways
3. EXPANSIVE PUBLIC SECTOR – OPERATION AND MAINTENANCE OF ROADS AND RAILWAYS Budgets for Fulfilment of operation and National Transport 2014 2015 2016 B maintenance* in Plan** after 3 out NOK billion of 4 years Roads 10.1 10.5 11.0 78.1% Rail 6.5 6.8 8.0 78.9% ... a likely candidate for counter-cycl
Slide 35: Expansive public sector – Sweden
3. EXPANSIVE PUBLIC SECTOR – SWEDEN Investments in the civil engineering market Fixed prices SEK (2013 rate) 35 Cutbacks postponed 30 +3%* – Mainly due to increased tax revenues and inflow of refugees 25 +18%* 20 -2%* 15 Road projects under way -4%* 10 in Stockholm and 5 Gothenburg - 2000 2001 2002
Slide 36: To round up
TO ROUND UP 3609.03.2016
Slide 37: Main assumption – positive global outlook in 2016 and 2017
MAIN ASSUMPTION – POSITIVE GLOBAL OUTLOOK IN 2016 AND 2017 GDP growth (%) 2013–2015* 2016 2017 Euro zone 0.7 1.8 2.0 Germany 1.2 1.9 2.0 United Kingdom 2.5 2.4 2.2 USA 2.1 2.6 2.6 China 7.3 6.4 6.0 Globally 3.3 3.5 3.7 Source: Swedish National Institute of Economic Research (KI) 37 09.03.2016
Slide 38: Summary
SUMMARY Scandinavia: • The Scandinavian construction and civil engineering market will grow by about 3% in 2016 and 2017, down slightly from 2015 Norway: • General slowdown in the economy with regional differences, also in the construction market • Public sector demand will be a driving force in the
Slide 39: Appendix – Forecasts
ade) ¥ APPENDIX — FORECASTS if
Slide 40: Forecasts (Norway)
FORECASTS Growth Level 2015 2015 2016 2017 rate 2016– NOK Billion Growth Growth Growth 17 Residential 120 3% 0% -1% 0% Private non- 51 -2% -2% -2% -2% residential buildings Public non- 33 3% 3% 3% 3% residential buildings Civil engineering 67 3% 12% 7% 9% Total 271 2% 3% 1% 2% Housing starts 31 000
Slide 41: Forecasts (Sweden)
FORECASTS Growth Level 2015 2015 2016 2017 rate 2016– SEK billion Growth Growth Growth 17 Residential 143 18% 5% 2% 3% Private non- 104 9% 4% 4% 4% residential buildings Public non- 42 6% 5% 5% 5% residential buildings Civil engineering 80 6% 2% 6% 4% Total 369 11% 4% 4% 4% Housing starts 46 000 50
Slide 42: Forecasts (Denmark)
FORECASTS Growth Level 2015 2015 2016 2017 rate 2016– DKK billion Growth Growth Growth 17 Residential 50 0% 5% 10% 7% Private non- 16 -2% 3% 7% 5% residential buildings Public non- 17 -3% 5% 5% 5% residential buildings Civil engineering 38 5% -2% -2% -2% Total 119 1% 3% 5% 4% Housing starts 14 500*