ifo Institute: European Construction Industry Growing Only Slowly

“A significant share of this growth was attributable to the construction of new apartments,” Dorffmeister adds. “However, this sector of construction is set to stagnate in 2020 and even shrink in 2021. In the medium term, civil engineering work will set the pace. But momentum in this sector, too, has meanwhile clearly slowed down.”

According to Dorffmeister, however, conditions for the construction industry remain favorable: the financing terms are attractive, public-sector clients are in a good financial situation, and the demand for investment in housing and infrastructure is high. “The economic climate remains positive, but has deteriorated slightly in recent months. However, the sharp rise in the price of building plots and high capacity utilization in the construction industry are increasingly hindering further development,” Dorffmeister says.

There are also country-specific barriers. In large parts of the Netherlands, for example, no building permits were issued for several months following a far-reaching court ruling on the country’s nitrogen emissions in 2019. New, very costly interim proceedings subsequently took effect, which led to further major delays in construction projects.

Momentum in construction is also faltering in places where overheated markets are returning to normal. Dorffmeister explains that elsewhere, the upswing never became widespread; rather, it remained concentrated in a few areas: “The markets in Spain, Portugal, and Italy are recovering only slowly. Growth rates in the construction market for new residential buildings in Spain, for example, are expected to keep slowing down and eventually shrink by 2 percent in 2022,” he adds.

The ifo Institute is the German founding member of EUROCONSTRUCT, which brings together researchers from fifteen countries in Western Europe and four countries in Central Eastern Europe. Further information can be found under www.euroconstruct.org/ec/reports.