Constructing Tomorrow: Sector Forecast

Construction
ConstructionImage Source: SteelGuru

Synopsis:

EU's construction industry faces a downturn due to rising costs and economic pressures. After two years of growth, the industry sees a decline in output and investment. The future looks cautious with modest growth due to governmental and EU policy support, amidst a mild recession in 2023 and slight recovery in 2024.

Article:

The construction industry in the EU has entered a challenging phase in the second quarter of 2023. After enjoying eight quarters of growth since the fourth quarter of 2020, rising material costs, labor shortages, and economic uncertainty have led to a decrease in construction output. This downturn began in the final quarter of 2022 and has continued into 2023, with forecasts suggesting it may persist into the second half of the year.

The impact of this downturn is particularly notable given the robust recovery the sector enjoyed in 2021, where it saw an increase of 6.7% due to governmental support. However, after the COVID-19 pandemic-induced decline of 4.8% in 2020, the sector is again facing headwinds. Investment in construction has also fallen in both the first and second quarters of 2023, confirming the recession in the sector.

Residential investment has been hit hard, declining for three consecutive quarters due to rising mortgage interest rates from the European Central Bank (ECB)'s measures to control inflation. On the other hand, investment in other construction areas, especially civil engineering, has shown some resilience.

The EU construction sector's forecast remains cautious. Public spending, which had been a significant recovery driver through the NextGenerationEU programmes and other initiatives, is expected to slow due to material shortages and fiscal constraints. Nevertheless, some areas within the sector, such as civil engineering, are still expected to see some growth.

Construction confidence had improved significantly after the mid-2020 pandemic lows, but recent supply chain issues and economic downturns have begun to dampen this optimism. While governmental housing support and public construction schemes will continue to benefit the sector, their impact is anticipated to diminish in 2024.

Different sub-sectors within the industry are facing varied prospects. Residential construction demand is declining due to interest rate hikes, while civil engineering should maintain its strong contribution to the sector's performance, albeit at a reduced level.

Private non-residential construction, covering offices and commercial buildings, has struggled the most, hit by high vacancy rates during the pandemic and a slow recovery since. The outlook for business investment in these projects remains weak for the near future.

Conclusion:

The EU construction sector is navigating through economic turbulence, with a mild recession anticipated for 2023. While a marginal recovery is expected in 2024, the industry's growth will likely be tempered. Governmental and EU policies provide some support, but the overall sector must adapt to the evolving economic landscape.

logo
SteelGuru Business News
www.steelguru.com