European construction markets in the shadow of the corona pandemic

The new forecasts were presented at the 89th Euroconstruct Conference in Stockholm on 12th June 2020.

The European construction industry will be hit hard by the Covid-19 crisis. According to the new forecasts presented at the 89th Euroconstruct Conference in Stockholm on 12th June 2020, there will be an abrupt downturn in the European construction market this year, but a slow recovery will begin already next year. It is a fact that European construction markets have had a lot of challenges leading up to the Covid-19 crisis with stagnation trends in many countries. Not surprisingly, the ongoing crisis will have a huge negative impact on the markets in all the Euroconstruct countries this year.  However, as the national experts of Euroconstruct foresee it right now, we will see positive growth rates already in 2021 and a normalisation in 2022.

Compared to 2019 levels, we will lose at around € 350 billion in total construction output from 2020 to 2022, despite the expected upturn and normalisation in 2022. According to the new Euroconstruct forecast, the number of unemployed persons within the Euroconstruct (EC-19) area will increase by 5 million persons this year compared to 2019.

In 2019, the total construction output in the Euroconstruct (EC-19) area grew by 2.7% compared to 2018.

New construction (including new residential-, non-residential- and new civil engineering buildings) has been driving the market for several years, and increased by 3.9% last year, while renovations have been growing steady around 2%. Total construction output reached about € 1,700 billion in 2019, and during the winter report (December 2019) the market was anticipated to decrease its growth rate to around 1% annually over the next two years as a result of a weakening economy.

Nevertheless, much in the world have changed dramatically since the introduction of the coronavirus. As of this, the forecast for 2020 has been revised downwards with more than 12 percentage points, indicating a decline of 11.5%. This drop in construction is in similar size to the drop caused by the global financial crisis in 2009. The total construction output is expected to reach about € 1,500 billion which is corresponding to the level of 2015, hence, losing several years of growth.

All but a few countries included in EC-19 are seeing a decline in 2020, where the UK and Ireland are predicting to have the largest drop around 33 and 38%, respectively. At the same time, Finland and Switzerland are expecting smaller drops in total construction, approximately by 1-2%, whereas Portugal and Poland are expecting continuing growth during the crisis.

Hence, indicating that there is a fragmented view among the countries on the impacts of the coronavirus.

However, total construction for EC-19 countries will see a rebound already next year of around 6% and then continue to grow by 3% in 2022, reaching an output level similar to the one in 2018.

Among the “big five” countries, it is only Germany that will see a small decrease (-2.4%) in total construction this year, while the rest (France, Italy, Spain and the UK) are expecting to have a decline between 12-33%. Although, all countries are expected to rebound in 2021 and 2022, but the magnitude of the growth will be smaller than the fall in 2020.

Still, there are downward risks to the forecast and the most significant one involves the coronavirus and the containment of it. Questions such as, will there be further lockdowns after restrictions are being eased or will everyday life start to go back to normal after the summer, are affecting the market view. The uncertainty in the development of the virus and its effects on the economy is very high. The different sectors within construction are all affected by the crisis but some more than others.

For the EC-19, the sector that is least affected is civil engineering, which is expected to decrease by 7.2% this year and then to recover in 2021 and 2022 with a growth of 7.4 and 3.5%, respectively. Both residential and non-residential construction are expected to fall somewhat more than 12% in 2020 and then start to improve from next year and the year after, between 3-6% annually.