According to ING, high interest rates and soaring building costs have drastically reduced the demand for new buildings in Europe. So far, ongoing projects and a heightened focus on sustainability have prevented construction volumes from shrinking, but we're expecting to see a steep decline begin to emerge in 2024.
Zero growth in 2023
ING is expecting zero growth for EU construction volumes this year, an upgrade of ING's previous forecast which is mainly due to a better-than-expected first half of the year. Construction volumes still remain high. In June 2023, EU construction production was at the same level as in the same period last year. Firms still have a healthy backlog of work, with 8.9 months of guaranteed projects at the beginning of the third quarter of this year.
However, there are clear signs that volumes will start to shrink soon as the late cyclical nature of the sector begins taking effect, says ING. Home buyers and firms are reluctant to invest in new premises due to the weaker economy, high interest rates and increased building costs. Due to long lead times, it's likely to take a while before these effects are reflected in construction output volumes.
Looming slowdown on the table for 2024
ING forecasts manufacturers of cement, bricks and concrete - those right at the beginning of the value chain - are already facing sharp production declines. Building material suppliers of these materials are registering an average fall in production of 13% in June compared to the same period last year. The highest declines are faced in Austria (-15.0%), Germany (-15.6%), and The Netherlands (-19.5%).
A decline in building permits, confidence and demand are also indicators for lower volumes in the construction sector in the second half of 2023 and into 2024. However, ING only expects a modest decline for the EU construction of -1% in 2024.