Market Monitor - Construction industry - Belgium

• Growth expected to remain subdued in 2016
• Low public construction investment
• Level of payment delays and insolvencies remains high

The rebound of the Belgian construction sector remains slow, as the industry is still underperforming compared to the rest of the economy. Since the end of 2011, 20,000 construction jobs have been lost, down to about 200,000 by the end of 2015. Belgian construction businesses suffer from high labour costs, especially when compared to construction businesses from Eastern Europe active in Belgium. Public initiatives to restrict unfair competition from foreign businesses and to reduce domestic  labour costs in order to increase competiveness had no real success so far. Construction output is expected to grow by just about 1% in 2016, and pressure remains on businesses´ profit margins.

Perspectives in the new residential construction segment remain subdued, with the number of permits for residential buildings recording a year-on-year decline in 2015. However, 2014 had been an exceptionally positive year, with the number of building permits up in the first half of 2014 as many households had filed requests before the end of 2013 in order to avoid stricter energy regulations. Most construction companies in this segment expect a decrease in the construction and completion of new buildings in 2016. Prospects for renovation businesses are more positive , with orders showing an increasing trend due to the aged real estate stock in Belgium.

In the non-residential construction sector, we have noticed a year-on-year decrease in the number of permits in 2015. Government investment remains low (1.7% of GDP) compared to the European average (3% of GDP). Infrastructure building is still facing decreasing order books and prices. The public tendering business seems to be most affected in Wallonia.

Payment terms of “60 days end of month” remain very common in the sector. However, some construction contractors (mainly large businesses) are trying to solve their liquidity issues by extending their payment terms even longer when paying their subcontractors. Payment behaviour of public bodies remains bad, and it is still quite common that businesses ask suppliers for longer payment terms if they themselves are waiting for overdue payments from public bodies.

Overall, we observed an increase in payment delays in 2015. Given the difficult market conditions, the number and amount of notifications of non-payments is expected to remain high. 

In 2015, 1,868 construction companies went insolvent: an 8% year-on-year decrease. Construction accounted for 18% of all Belgian business insolvencies. We expect business failures to decrease further in 2016, although at a slower pace. Despite the decreases, the overall level of construction insolvencies remains high, given the steady increases seen in the years 2008-2013. We noticed that construction businesses increasingly apply for protection against suppliers according to the Wet Continuïteit Ondernemingen (WCO) regulation, the Belgian equivalent of the Chapter 11 procedure under US law.

That said, our prudent underwriting stance should allow us to maintain our current level of engagement. In order to sustain our risk appetite, it is necessary to identify the most affected companies/subsectors and to contact buyers for up-to-date financial information and performance outlooks. We have conducted review actions in particular for subsectors (infrastructure works and metal manufacturing/metal construction) due to rising credit insurance claims.