Role of Construction sector











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As defined in (Joseph, et al., 2004) macroeconomics is a field of economics that studies the whole economic behaviour of a national economy including income, output, and employment. It is also considered possible effect of international economy aimed at investigating flow of exports and imports among countries and international flows of capital. Construction industry is an important sector of national economies because it influences significantly on many aspects of economy like output, employment, and sustainable development. During the current recession, its contribution is shown clearly in short, mid, long term policies of governments worldwide.

The World Economic Outlook (IMF, April 2009) showed that the global economy was in very serious recession suffering from a massive financial crisis and severe loss of confidence. The crisis started in the United States due to subprime crisis in August 2007. Then, advanced economies fell into mild recessions by the middle quarter of 2008 caused by tightening credit conditions, but emerging and developing countries still grew like Viet Nam’ 2007 GDP growing an estimated of 8.5%, and China’s 2007 GDP reaching 13%. 
However, since September 2008, when Lehman Brothers collapsed and AIG was rescued, emerging markets have been hit hard due to intervention in the United States and Europe. An estimated of 1.3 per cent of global activity is projected to decrease in 2009 and might recover gradually in 2010 by 1.9 per cent. This year, Viet Nam’s GDP continues to grow about 4.6%, and China’s GDP just slows to 8.5%. Variation of GDP growth is shown in Figure 1. As a result, major indicators including industrial production, consumer confidence, employment, fell rapidly in the end of 2009 (see Figure 2).
Figure 1. Real GDP growth (IMF, April 2009)
Figure 2. Current and forward – looking indicator (IMF, April 2009)
It is necessary to consider the two common definitions of recession to understand the current economy situation. Firstly, a national recession (Joseph, et al., 2004) is that its GDP growth is negative at least two consecutive quarters. Figure 1 shows that emerging and developing economies and advanced ones’ GDP have decreased from 2008 until 2009. Some countries like France, Germany technically went out of recession by growing about 0.3% from April to June this year. But most of European countries still grow negatively. Secondly, as defined by the USA National Bureau of Economic Research, a recession is when a significant decline in activity spreads across the economy and lasting some months, and focuses on the economy–wide monthly series. Again, Figure 2 shows that many indicators of economy worldwide have declined for months. Therefore, the current economy fulfils both common definitions of recession.
The International Monetary Fund examined major factors that impact employee losses in the World Economic Outlook (IMF, October 2009) including construction, manufacturing, financial and real estate services, and other industries focusing on Spain, the United Kingdom, and the United State. According to this report, construction industry contributed to the big employment losses. The latest statistics issued by the UK Office for National Statistics (ONS, 2009) in the 2nd quarter showed that total volume of the construction output in the 12 months to the second quarter decreased 12 percent compared to the previous 12 months. In the United States, the construction industry decreased 16.7% compared to September 2008 (FRB, September 2009).

According to (Myers, 2004), the broad definition of construction industry that includes building products, equipment, professional service involving construction and property management, contributes about 15% to 16% to annual economic activity. However, due to applied definition of construction industry that official statistics based on to take into account, construction sector is mostly under 12%, normally in the range of 7% to 10% of annual economy activity, for example, UK’ construction industry in 2000 produced about 7% (Myers, 2004). In newly developing countries like Viet Nam, construction industry is the driving force of economy, industrial sector and construction can contribute about 43 per cent to GDP according to the national report (2006). 
The estimation above is considered official economy exclusive of black economy that is significant economy as well. The data showed that (Myers, 2004), in France black economy is about 23% of official one, it is about 17%, 10% in Italy and the UK, respectively.
In terms of employment, the US construction industry contributes 5.1% of employment (Rose, et al., 2007), and in the UK, it is 7% of employment (BIS, June 2006).
In context of the current recession, (Stijn, et al., 2008) contended that it tends to last longer and deeper about 10 to 18 quarters due to this recession relating to crunches and busts, hence, governments’ move to deal with the current and future situation is shown obviously in stimulus packages. Depending on existing state of each nation, appropriate macroeconomics policies are applied to stable economy. All governments use both fiscal and monetary policies to manage macroeconomy directly (Myers, 2004). The Bank of England has reduced interest rate from 1.5% to 1% since January 2009, and a tax cuts package of £2.7 billion in May 2008. The other government like Japan, China offered tax cuts and reducing interest rate as well. The United States is a typical example of effective action in solving recession. GDP growth in the United States during the current recession is shown in Figure 3.
Since the downturn of economy in August 2007, the US government has launched two stimulus packages. The first one is in February 2008 that spent about $152 billion focusing on tax rebate and business incentives. However, this bill failed to increase employment and GDP, thus, it led to the second package that was passed in February 2009. The second bill was about $787 billion. This package continues to support tax cuts and interest rate policies. Besides, the major goal is to create at least 3 million jobs by 2010. Figure 4 and Figure 5 show the expected effectiveness of the second stimulus package based on calculated in (Christina, et al., Jan 2009).
Figure 3. Real GDP growth of the United States

Figure 4. Actual GDP with and without the 2nd stimulus package (source: Congressional Budget Office)
Figure 5. Unemployment rates with and without the 2nd stimulus package (source: Congressional Budget Office)
Because the current recession involves financial crisis and loss of confidence in bank system, thus, it will take time to get back such loss. In the short run, the major mission is to push Americans back to work and to boost investment and confidence by reducing interest rate and tax cuts in order to help companies keeping operation. The interest rate in the US has been kept from 0% to 0.25% since December 2008. The second bailout package offers tax cuts of $288 billion.
The second bill spent money on many major sectors of the economy including construction. Total value for infrastructure is $121.2 billion that is about 15.4 percent of the total value. As stated in the fourth purpose of the stimulus package (US Congress, 2009), transportation and infrastructure is to serve long-term economic benefits. In addition, the Conference Agreement (Committee on Appropriations, February 2009) considered infrastructure and housing are among key investments aimed at producing more jobs and strengthening the economy.
One characteristic of construction industry is that it employs many low and middle income workers who have been affected deeply in the current recession. Therefore, in the short-term when many construction projects start, many jobs will be created that will reduce pressure on employment. An estimated of 678,000 jobs will be created in construction by the end of 2010 (Christina, et al., Jan 2009), the estimates show that construction and manufacturing will produce 30% of the total jobs that includes 15% of all workers. Furthermore, construction sector indirectly provides jobs for other sectors since it uses other sectors’ output for construction projects like electrical appliances, furniture.
With current spend-out schedule, the US government will spend 23% of the total this year (Table 1). As shown in Figure 6, within 18 months since the second bill come into effect, there is about $30 billion for infrastructure that is one-fourth of the total approved. According to (, 2009), 30,383 jobs and 7,000 federal stimulus contracts have been directly created or saved by contractors who received $16 billion from the $787 billion bill.
Table 1. Stimulus cost by fiscal year (source: Congressional Budget Office)

Figure 6. Spend-out rates of Stimulus categories (billions) (Source: Congressional Budget Office and Joint Committee on Taxation)
The construction output of the United States recovered from July to August 2009 with the growth from 0.1% to 0.6% (FRB, September 2009). However, in September, it fell 0.4%. The possible reason for this decline is that the United States government focuses mainly on public building and infrastructure, whereas, private contractors did not get much support from the 2nd bill.
In the second stimulus programme, construction projects are invested aimed at creating jobs in the short and mid run. In the long run, a big amount of money is spent on sustainable housing ($4 billion) and modernising infrastructure ($15 billion) aimed at future investment and reduction of carbon emission. This spending is really important because government’s policies will progressively lose strength and financial forces are still weak (IMF, October 2009), therefore, the government needs to boost consumption and investment. Construction industry is considered one of the six key strategies to defeat global warming and transforming the United States into a green economy (Lim, et al., 2008). In this century, sustainable development, that is mostly involved renewable energy and sustainable housing, is full of promise to provide new jobs and growth. That’s why many country in the world set goals to transform into green economy.
In the current recession, construction industry has been contributing directly and indirectly to governments’ macroeconomics policies to recover economy. Construction industry received governments’ support in order to provide jobs, increase investment, and prepare for the long run while financial sectors are healing and reforming. The world economy is expected to recover by 2010 due to time lags of the macroeconomics policies. Beyond 2010, public interventions will reduce gradually that will lead to potential risk of sustainable recovery. Such duration is long enough for many construction projects come into effect and reach firm state, together with prospective contribution in green economy, construction industry will continue to take major part in development of many countries.

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