Factors combine to finally halt EU construction: Eurofer

The sustained increase in construction material prices, coupled with labour shortages in certain EU countries and growing economic uncertainty, has finally impacted the positive trend in construction output observed since the fourth quarter of 2020, says Eurofer.

In Q4 2022, EU output recorded its first decline since then, by 0.1%, while it was nearly flat, at 0.1% growth, in Q1 2023.

Gross fixed investment in construction dropped in Q1 by 0.4% on-year after eight consecutive quarterly increases. However, two out of the last three quarter-on-quarter developments showed a clear slowdown in construction investment, signalling that activity in the sector has lost ground, the European steelmakers’ association notes in a report seen by Kallanish.

Q2 growth was driven mainly by “other construction” investment, particularly in civil engineering. Its expansion is projected to continue during 2023, but at a much slow pace due to lower public expenditure in construction. As expected, residential investment continued to drop, due to higher mortgage rates resulting from monetary policy tightening by the ECB to curb inflation.

Growth has been supported by generous housing and renovation schemes in place in many EU Member States. However, the impact of these is likely to fade due to downside factors including construction material cost and supply shortages.

The EU construction sector is expected to experience a mild recession in 2023, falling 0.5% on-year, and to recover modestly, by 0.7% in 2024, Eurofer says.

“Civil engineering will continue to be supported by EU-wide public policies … but their effects have become increasingly uncertain and difficult to quantify due to the recent deterioration of the economic outlook. The suspension of the Stability and Growth Pact has been extended until the end of 2023, which will leave room for government spending in infrastructure. However, the visible effects in terms of construction output related to these projects will be lagged over time,” the association concludes.

Adam Smith Poland