Eurozone construction rebounds but post-pandemic uncertainties remain: ING

Eurozone construction output should recover by 4% on-year in 2021, but the recession will leave its mark, says ING Bank. Permits for new dwellings – a strong indicator of future production – plunged in France and Spain in 2020, which may hinder the completion of new dwellings in the coming years, even as the pandemic abates.

Infrastructure companies are receiving fewer orders, and the high uncertainty and weakening financial position of many firms mean investments in commercial building are also expected to decline.

During the first Covid-19-related lockdown, the construction sector was only modestly affected, although France experienced a large contraction. Eurozone order books showed only a small decrease from 8.4 months of ensured work at the beginning of 2020 to 8.0 months in January 2021. The rebound this year will be pronounced in countries, such as France and Spain, that had strict lockdowns. More construction sites will remain open in France during the second pandemic wave.

“Given that the uncertainty regarding the duration of the pandemic is very high and the financial position of many firms is weakening, private and public investment is expected to be lower in 2021,” ING says in a report sent to Kallanish. “As a result, eurozone construction output growth is unlikely to fully compensate for the decrease of 2020 this year alone.”

During economic crises, governments typically attempt to stimulate the economy by investing into infrastructure. “However, this time appears to be somewhat different, as it is not certain whether we will return to the same traffic congestion as before,” ING says. “This is because an increasing number of people will probably continue to work from home and fewer people going on business trips.”

Economic recovery schemes for the pandemic are focusing on other investment categories than just infrastructure, with the EU recovery fund aiming to make European economies and societies more sustainable. Moreover, central governments are unlikely to skip or postpone infrastructure projects, but local governments might due to the pandemic.