It used to be said that you could measure a city’s economic wellbeing in direct proportion to the number of tower cranes visible along its skyline. But now, with so many building projects shelved or in limbo awaiting remission from the downturn, the exact opposite is often true, with those erstwhile symbols of prosperity standing mournfully idle as an ironic reminder of better times.

With some exceptions, the picture across Europe is fairly uniform. Recent Atradius analysis, in its monthly Market Monitor, shows a pattern of continuing pessimism.

In the Netherlands, for instance, where traditionally the construction sector has accounted for four percent of GDP, the current poor level of construction activity is seriously affecting the economy, with residential building output down 44 percent in the first half of this year, the number of building permits down 32 percent year on year, and corporate insolvencies in the construction industry now double that seen in the period 2006 to 2008.

In Belgium, as in many other countries, public investment is throwing a lifeline to the sector, while private investment continues to languish, and the trend of increasing insolvencies seen in 2009 has continued into 2010. In France, the number of new orders – enough to provide only about six months of building activity – is way below the norm and a genuine cause for concern.

Construction has in the past accounted for around 10 percent of Spain’s economy, but the property boom – for so many years a very visible feature of the Spanish landscape – has turned to bust. Industry leaders are now pressing Prime Minister Jose Luis Rodriguez Zapatero for urgent talks so that they can air their protests against his government’s announcement of a proposed cut of €6.4bn in infrastructure spending. It’s a dilemma: Zapatero needs to cut the sky-high deficit, but adding to the already heavy unemployment benefits burden (the country’s unemployment level now tops 20 percent) won’t help.

Concerns over cuts in public spending to reduce government deficits are of course not restricted to Spain, and warnings have been voiced in many other countries that cuts in capital spending programmes may hamper the fragile recovery in the construction industry. And it’s not just in the realm of public works that the tentative recovery may be tipped off balance. In the UK, for instance, where there has been a small increase in public sector building of late, activity in the private residential sector is looking decidedly shaky. Demand has been subdued by stricter mortgage lending criteria and uncertainty over the future direction of house values.

Unsurprisingly, in Ireland, as in Spain (both of which have recently received assistance for their construction industries from the EU Globalisation Adjustment Fund), the importance of construction to the overall economy makes its continuing contraction that much more critical. Over the past two years, the number employed in the sector has fallen by over 123,000, accounting for a massive 46 percent of Irish job losses in that period.

However there are glimmers of light. The German construction industry is seeing some growth, albeit low, helped considerably by major infrastructure projects – the result of a strong public private partnership programme. Prospects for some other European countries, including Poland and Slovakia, are also more optimistic, driven by much needed infrastructure projects.

No matter what the current situation and outlook in different countries, Atradius’ advice to those contemplating entering into business dealings with companies in the construction industry is to look for signs of potential financial difficulty, for instance disputes that may seem spurious or requests for extended terms of payment, and resolve these issues swiftly. Vendors should also take note of the age and size of their potential customers: most bankruptcies affect smaller, less well established firms. As a leading global credit insurer, when asked to underwrite the trading risk on a construction firm, and to arrive at an accurate and realistic assessment, Atradius always seeks the most recently available financial information on the subject firm, and looks closely at its banking facilities, liquidity, asset management, projects in hand and cash flows.

Simon Groves is a senior manager of corporate communications at Atradius Credit Insurance NV. The Atradius Market Monitor is available to download from www.atradius.com