In Europe, the issuing of building permits has fallen and building costs are still high, signalling a difficult year for the construction sector
Marginal construction output growth in 2023
EU production volumes increased marginally, by 0.1%, in 2023 due to a very strong first quarter. Yet, in the third and fourth quarters of the year, EU construction production decreased by 0.3% and 0.2%, respectively. High interest rates and a weak economy made home buyers and firms reluctant to invest in new buildings. In contrast, renovation works in the building sector and the civil engineering sector kept up pretty well due to sustainability works and investments in (digital) infrastructure.
Small decline expected in 2024
For 2024, we expect a small decline in production volumes (-0.5%). Due to long lead times, new residential and non-residential building volumes will decline further as a result of the reluctance of home buyers and firms to invest in new premises in the past. However, the renovation subsector (including sustainability works) is seeing structural growth in demand. We also expect that investments in infrastructure will continue to grow. The main drivers for this continual growth will derive from the EU Recovery funds, investments in digital infrastructure, extensions of the power grid and the energy transition.
Some room for optimism for 2025
For 2025, we expect that the above-mentioned growth trends in the renovation and infrastructure sector will continue. We also expect the new building sector to slowly improve due to the recovering housing market. However, this will take some time as they are limited by the declining amount of issued building permits in the short run.
By Maurice van Sante, Senior Economist Construction & Team Lead Sectors
