EasyAssetManagement reports that Construction investors can effectively navigate the anticipated downturn and capitalize on potential recovery opportunities by monitoring trends such as rising interest rates, weakened demand, and growth in civil engineering projects, and by focusing on adaptable companies within the sector.
Forecasts predict a 2.7% decline in output for 2024, followed by a slow recovery in 2025 (1.3%) and 2026 (1.8%). This slowdown is blamed on rising interest rates and a general weakening of demand across the region. Even strong activity in civil engineering projects might not be enough to offset a broader construction downturn fuelled by pessimism in the market.
The forecast for Europe's construction industry is getting cloudier. Euroconstruct has revised its 2024 outlook downwards, predicting a 2.7% decline in output. This is a significant drop from their December forecast and reflects the ongoing weakness in the residential sector. There's still hope for a moderate rebound in 2025 and 2026, driven by countries like Ireland and Hungary. High interest rates are expected to persist, potentially hindering borrowing and slowing construction activity. However, Euroconstruct remains cautiously optimistic, predicting continued growth for the UK and Ireland in 2025 (4-5%). Eastern European nations might outperform the west, with Poland potentially leading the pack with construction output growth reaching 4-5% by 2026.
Europe's civil engineering sector is defying the construction slowdown and is on track for sustained growth until 2026. This is thanks to ongoing projects in transportation networks and the energy sector, many of which take a long time to finish. Euroconstruct, a construction research body, has even revised its forecasts upwards due to this momentum.
The positive trend is evident in the Eurozone's civil engineering output, which grew 5.4% year-on-year in March. This adds to a three-month growth streak of 2%. While some Eastern European countries like Poland and Slovenia saw contraction in March, Belgium led the pack with a robust 7% year-on-year increase. Romania's month-on-month decline of 9% did dampen overall growth in the region, but the Czech Republic and Slovakia also experienced a slight dip of 8%.
Not all sectors of Europe's construction industry are feeling the pinch. While residential building faces a tough year with stagnant activity in 2024, Euroconstruct predicts a flat outlook for non-residential construction, followed by a rebound in 2025 and 2026. This suggests new construction might slow down, but existing buildings are likely to see a surge in renovations. This trend aligns with recent data showing a 2.4% drop in overall building output (mostly residential) during the first quarter. Tight financing conditions and rising construction costs continue to dampen enthusiasm for new residential projects and renovations alike. Permit issuance for new homes is also on the decline (down 3% in February), hinting at continued challenges for the residential sector in the Eurozone.
European construction companies are feeling a mixed bag of emotions. While their order books aren't overflowing, there's a glimmer of hope. Employment and price expectations have improved slightly from January to May. The construction confidence indicator, although not at its disastrous lows of 2009-2010, still reflects a negative overall outlook. Builders continue to point a finger at weak demand as the biggest hurdle, with this concern even growing slightly in May compared to January. Labor shortages haven't disappeared entirely, but they seem less critical than their peak in 2022. Supply chain issues also appear to be easing, and strong financial reserves are mitigating the worry of high interest rates for most companies. So, while the European construction industry isn't exactly booming, there are signs that things might be turning a corner.
While a significant downturn is predicted for 2024, with a slow recovery on the horizon, there are glimmers of hope. The strength of civil engineering projects and potential rebounds in non-residential construction suggest a future that isn't entirely bleak.
The key to navigating this bumpy road lies in adaptation. Builders who can address weak demand, manage rising costs, and capitalize on opportunities in renovation and eastern European markets will be best positioned to weather the storm. The easing of supply chain constraints and improved employment and price expectations offer a cautiously optimistic outlook for the industry's long-term health. While challenges remain, the European construction sector may yet find its footing and emerge stronger on the other side.
Easy Asset Management is closely monitoring developments in Europe, even though our current investments are primarily US-listed companies. This doesn't necessarily limit our exposure, as many of these companies operate globally.
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Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an external contributor as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.
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