“Interest rate turnaround weighs on European construction sector, Austria faces significant slump.”
The Austrian construction industry faces a substantial downturn in 2023 and beyond, as projected by the December WIFO forecast. This decline is characterized by a consistent worsening of the business climate, mirrored by pessimistic sentiment indicators and declining production figures. While construction costs and prices initially indicated growth, adjusted figures revealed actual declines.
The slowdown in construction commenced in 2022 due to various factors, including the war in Ukraine affecting construction costs and an early-summer interest rate turnaround. Austria experienced tightened lending to households, further exacerbated by interest rate hikes, resulting in a considerable drop in new lending. Corporate demand for credit, especially in construction services, also diminished significantly. The decline in residential construction, particularly in detached and semi-detached houses, intensified due to a pre-existing decline in building permits, accelerated by macroeconomic shocks.
A recession in the Austrian construction industry is forecast for 2023 and 2024, with construction investment expected to fall further in 2024. Stabilization is not expected until 2025, with real growth in residential construction projected for 2026. However, sectors related to renovation, driven by high energy prices, might evade the overall downturn. Similarly, civil engineering, though facing reduced growth, is expected to remain relatively stable, especially in roads and railways due to ongoing framework plans.
Uncertainty looms over construction prices, which could potentially decline in certain sectors due to reduced demand. The overall forecast suggests a challenging period for Austria’s construction industry, marked by a prolonged downturn, albeit with some resilience in renovation-related sectors and civil engineering.