BRIEFING ON EUROPEAN CONSTRUCTION
A perfect storm for European construction?
by Michael Klien, WIFO, Austria
2022 can be seen as the second year of recovery for the European construction industry after the outbreak of the COVID-19 pandemic. However, the year-on-year growth rates of 3.0% were already significantly lower than in 2021 (+5.8%), and there is a reason for this: the sharp rise in construction costs.
The year 2022 has started very promisingly for the Austrian construction industry. In the survey results of the WIFO Business
Survey at the beginning of the year, more and more companies reported a favourable assessment of business activity and their
order situation. However, very quickly over the course of the year the economic climate deteriorated.
The comparatively fast deceleration of construction activity was not limited to Austria but became a dominant pattern across Europe. A comparison of business sentiment across countries shows the construction industry has lost pace all over Europe (see Figure below). And in many cases, the sentiment in the construction industry has already crossed from an optimistic to a pessimistic appraisal of the current situation. In the neighbouring countries of Germany, the Czech Republic, Hungary and Poland, the share of firms with insufficient order backlogs already predominates.
The major factor behind the rapid cooling of construction activity is undoubtedly the development of construction costs. The European construction industry has been hit by two consecutive cost shocks within a short period of time: In 2021, during the recovery phase after the COVID-19 pandemic, there were already significant cost increases, which were primarily due to the unexpectedly rapid economic recovery. And if at the turn of the year 2021/2022 it still looked as if the situation would calm down and the price increase as well as the material shortage would now weaken, the second massive cost shock within 12 months followed immediately with the Ukraine war.
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Mr. Michael Klien
WIFO - Austrian Institute of Economic Research
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