Greek construction companies are vulnerable because of their high degree of dependence on public works and the projected slowdown of activity in this field, making it necessary for them to seek a replenishment of business through big contracts in neighboring countries, the National Bank of Greece (NBG) says in an analysis paper released earlier this month. The report anticipates that the stabilization of property prices in Greece since mid-2003, combined with the prospects for rising interest rates, is likely to lead to a slowdown in housing construction activity. A parallel slowdown in private building activity outside housing is projected to be mild, as the level of business confidence remains high and the completion of infrastructure projects will bolster investment interest, offsetting in part the saturation in the commercial properties market. The study expects a significant fall in public construction after the end of the Olympic Games. Nevertheless, inflows of European Union investment subsidies will continue at least until the end of 2007. The contribution of the construction sector to growth is expected to be around 0.6 percent of gross domestic product in 2004, but activity in the next two years will lag compared to the rest of the economy, the report says. Firms listed on the Athens bourse show a better economic performance than other listed firms outside the financial sector. Their pretax profit margin is estimated at 15 percent, compared to an average 12 percent in the other non-financial sectors, despite a decline due to strong competitive conditions in recent years. Moreover, listed construction firms on the whole have a lower dependence on borrowing, basing their financing more on equity capital. Compared to their peers in the eurozone’s two largest economies (France and Germany), Greek construction firms present a mixed picture. Their return on equity (ROC) is 8 percent, against German firms’ 4 percent and French firms’ 18 percent. The construction sector has traditionally been a driving force for the Greek economy, the report notes. It played a significant role in the country’s high growth performance in the last seven years, culminating in a 1.3 percent contribution to the 4.3 percent total growth rate in 2003. This strong performance mainly reflects a rapid proliferation of public and private building activity outside housing, which seems to have reached a phase of maturity, with lower growth rates. In the public sector, construction was considerably propelled by European Union investment subsidies and projects in preparation for the Olympic Games, boosting its contribution to the gross domestic product from 2.5 percent in 1990 to 4.3 percent last year. Housing construction grew on a par with GDP in the last eight years, supported by a 61 percent rise in real terms and the sharp fall in mortgage rates between 1999 and 2003. As a result of the above trends in construction, which signal the modernization of the economy’s productive capacity, the share of housing construction in GDP fell from 7.6 percent in 1991 to 5.2 percent in 2003, while the total share of private (outside housing) and public construction rose from 7 percent to about 9 percent over the same period.