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Public sector is healthy – at the moment

The public sector is one of the few sectors that held up well in the last recession and it seems to be following suit this time around but for how much longer?

Having studied the early-cycle housing sector, and the plummeting commercial sector, this week we turn our focus to a sector that actually seems to thrive during and after a recession.

In our continuing series on how this recession compares with that of the early 1990s, we are looking at the public sector’s performance to gain more understanding about the current economic climate’s effect on the industry.

The good news is that the public sector, chiefly health and education work, appears to be performing strongly, and even better than in the previous recession.

The sector entered the 1990s recession with double-digit growth, and continued with small positive growth throughout the downturn apart from one minor blip - a 3.6 per cent year-on-year fall in the third quarter of 1991.

It stormed out of the recession with output growth throughout 1992.

This time around, public construction has seen double-digit increases in output for every quarter of the recession apart from the first quarter of 2009, which was still a healthy 7.5 per cent up on the same period a year prior.

So can we assume that health and education spending are always boosted by the government during a recession?

Looking back further to the nosedive that public sector construction took during the recession of the early 1980s suggests it may not always be the case.

Deloitte corporate finance’s head of infrastructure and government Nick Prior said: “I wouldn’t expect a government of any colour to be spending as much money in the next five years as was spent in the previous ten.

I wouldn’t therefore anticipate the investing in another substantial programme of District General Hospitals or the launching another significant schools programme.”

Recent new order figures, which are already tailing off, may back this up.

Although they have peaked during this recession Mr Prior attributes the swell in orders to lengthy Government procurement processes started prior to the downturn as well as a push to get projects “shovel ready” before the forthcoming general election.

Following the election he can only anticipate significant public spending cuts.

He added: “Government is typically the last into a recession and it is the last out. The squeeze is starting to happen now.”

With the Construction Products Association forecasting a fall in output from 2011 onwards, it seems that public sector construction may still peak on the back of a recession, as it did in the 1990s. But it may then fall off more sharply.