Europe's construction sector seen shrinking-report

* Construction output to drop 4 pct in 2010

* Poland to see double-digit growth, Spain to suffer

* Unwinding stimulus programmes hit civil engineering

By Greg Roumeliotis, European Infrastructure Correspondent

AMSTERDAM, July 8 (Reuters) - Europe's construction sector is expected to contract in 2010, its third year in recession, even as the region's economy returns to growth, according to market research and forecasting firm Euroconstruct.

The unwinding of infrastructure stimulus programmes, in conjunction with anaemic economic growth in most of Europe's major construction markets, means European construction output will not be back in positive territory until 2011, Euroconstruct economic consultants predicted in a report provided to Reuters.

Europe's STOXX 600 Construction and Materials index .SXOE, comprising some of the world's largest infrastructure companies including Vinci (SGEF.PA), Ferrovial FER1.MC and Lafarge (LAFP.PA), is down more than 17 percent since the start of the year. It has lost more than half its value since June 2007.

Construction output in 19 European countries - the ones with the largest construction markets - is set to drop by 4 percent this year after an 8.8 percent slump in 2009 before growing by 1.2 percent in 2011, according to Euroconstruct.

"Construction represents 10.5 percent of gross domestic product (GDP) across those countries," Euroconstruct consultants wrote in the report.

"With many countries now withdrawing public funds for infrastructure projects, what is needed is a continued commitment to construction as a major component of the economic recovery, rather than targeting public capital investment in austerity measures."

The financial downturn has also hit residential and non-residential sectors with difficulties accessing credit, oversupply in some countries, the lack of confidence among construction clients and the increase in unemployment negatively affecting the construction pipeline, Euroconstruct said. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graphic on the European construction sector:

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POLAND, SPAIN

Poland, which represents one half of the Eastern European construction market and was the only country in Europe to record positive GDP growth in 2009, has posted growth in construction output despite a housing and commercial property slump.

Driven by a substantial investment in EU-funded infrastructure projects and a recovery in new residential construction from 2011, Poland's construction sector is expected to grow by at least 10 percent in 2010, Euroconstruct said.

At the other end of the spectrum, in debt-laden Spain, whose construction boom peaked in 2007, austerity programmes are expected to lead to a 20 to 25 percent decrease in civil engineering activity, Euroconstruct said.

The housing sector shrunk by almost 50 percent in Spain in 2009 and is not expected to grow until 2012 at least, while non-residential construction and civil engineering are also expected to contract this year and next, Euroconstruct said.

Spain introduced a public works investment package totalling 17 billion euros in April for 2010 and 2011, which is to be funded using public private partnerships so that it does not count in its budget deficit calculations. [ID:nLDE6360V2]

In Germany, Europe's largest construction market, the drop in construction output was short-lived, with output down just 0.7 percent in 2009, thanks to economic stimulus programmes.

New residential construction has been hit by the elimination of housing grants but is expected to regain some momentum in 2011 and 2012, Euroconstruct said.

Germany's civil engineering sector is growing again this year, partially due to the stimulus programmes, but any ground gained is likely to be lost again in 2011 and 2012, Euroconstruct added.

In France, Europe's second largest construction market, the construction sector went into decline in 2008 and while GDP will grow again this year, the recovery in construction will not take place until next year at the earliest, Euroconstruct said.

(Editing by David Cowell)