EU construction outlook: economic headwinds encourage slow decline

Material shortages are decreasing in the EU building sector but labour scarcity remains a challenge, says banking and financial services company ING. The share of renovation is growing due to sustainability work which in turn makes the sector less volatile. Therefore, only a modest decline is expected in 2023.

According to the company, in December 2022, the EU’s construction output was approximately at the same level as at the end of 2021. This counts for both subsectors; building and infrastructure and despite economic headwinds, order books are reportedly still well-filled.

On average, EU construction companies had exactly nine months of work in stock at the beginning of 2023. That’s 0.2 months more than in the last quarter of 2022.

Order uncertainty

Due to the uncertain economic situation, some orders are somewhat less certain than previously thought. In addition, the increased costs of materials have made it more difficult for businesses in the building industry. As a result, profit margins are regularly lower than previously calculated. 

ING adds that the prices of many building materials (eg. timber and metals) peaked during the summer of 2022 and have fallen steadily since. The reasons given for this are the diminishing supply chain disruptions and weakening demand as forecasts for economic development in many countries have been lowered.

Material prices remain high

The normally stable price of concrete, cement and bricks increased steadily in 2022 due to rising energy prices as the production processes of these materials are very energy intensive. Despite decreasing energy prices, prices for these energy-intensive building materials were still increasing at the beginning of 2023 says the financial services company. They expect that it will take another one or two months before these prices gradually decline as well.

Fewer contractors have to increase their sales prices due to the lower costs of some building materials. This has been especially the case in Austria and The Netherlands says ING. In May 2022, a record percentage of approximately 75% of the companies in these countries replied in a survey that they were scheduling a sales price increase. This percentage decreased to almost 50% in February 2023.