Construction output bounced back strongly in February after weather-related weakness in December and January but the sector is still likely to act as a significant drag on the first-quarter GDP estimate released later this month. There should, however, be a corresponding boost to the second quarter.

Construction accounts for 6% of GDP. Output is estimated to have risen by a seasonally-adjusted 8% in February from an upwardly-revised January level but was still 9% below the fourth-quarter average and 14% lower than in November, before the snow struck. It seems reasonable to assume that the November level will be regained in March or April – construction new orders rose by 18% between the third and fourth quarters and surveys suggest that weakness was temporary. Assuming a March return and stable output thereafter, construction would subtract 0.4 percentage points from GDP growth in the first quarter while adding 0.8 points in the second.

The rest of the economy may grow by about 0.75% in the first quarter, assuming modest further gains in services output in February and March and a reversal of the February decline in industrial production. The construction effect would then imply GDP growth of 0.3-0.4%. This shortfall would be offset in the second quarter. If non-construction output rose by a further 0.5%, GDP expansion would increase to 1.3%, based on the above assumptions.