The Construction Products Association (CPA) will reveal in its annual forecast that construction output dropped unexpectedly by 1.3% last year, though it is expected to recover by a modest 0.9% this year, before picking up to 3.1% growth in 2007.

Public-sector work, including projects under the private-finance initiative (PFI), dropped by 2.9% last year, after rises of 13.4% in 2003 and 4.4% in 2004. The CPA expects the fall to be temporary, and believes that public-sector activity will increase by 4.3% this year.

But construction will continue to be held back by weak private-sector activity, it said. Private-sector output is set to drop by 0.9% this year after a 0.5% drop in 2005.

“This had been our longest period of continuous growth in output in our industry since the 1950s,” said Michael Ankers, chief executive of the CPA. “We had always predicted a fall in private-sector investment in construction in 2005, but the expectation was that public-sector investment (including PFI) would continue to grow by about 4%.”

The modest predicted recovery for construction chimes with prospects for the rest of the British economy. According to Consensus Economics, an analysis group, the average expectation for growth this year is 2.1%, only slightly better than the 1.75% expansion in 2005. Consumer spending is set to grow by 1.9%, only marginally up from 1.8%, while business investment is expected to rise by 3.3%, compared with 2.7% in 2005.

Consumer-price inflation, now 2.1%, is forecast to end the year at 2%, in line with the official target, while base rate is predicted to edge down from 4.5% to 4.25%.

Economists remain upbeat about America, expecting growth of 3.4% after 3.6% in 2005, although Japanese growth is expected to slip from 2.4% to 2%. Optimism has grown about Germany, which is expected to expand by 1.5%, nearly three times last year’s rate. Euroland growth is put at 1.9%.

Economists are generally upbeat about prospects for the world economy. “The economies of the industrialised countries are in robust shape at the turn of the year,” said Germany’s Commerzbank in its 2006 forecast. “Given the huge increases in prices for crude oil, this is quite remarkable. Only a year ago it was often assumed that if crude oil exceeded $50 a barrel, it would trigger a global recession.”

Robert Lind at ABN Amro, the investment bank, said in a report: “The global economy continues to grow at a rapid pace. Over the past three years, annual world GDP growth has averaged 4.5%, its fastest rate for three decades. We expect growth to remain above trend in 2006, although we see some slowdown as central banks raise interest rates to contain inflation.”

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