Sustainability To Offset The Construction Decline In Europe

According to the most recent forecast from economists at Dutch bank ING, the construction industry in Europe may begin to contract in 2024. ING has cautioned that the combination of high-interest rates and escalating building costs has significantly reduced the demand for new construction projects across Europe.

Despite this, ING noted that ongoing projects and a growing emphasis on sustainability have, up until now, prevented a decline in construction volumes. However, it anticipates that a decline will become evident starting in the next year, 2024.

Nonetheless, ING has revised its previous projection for construction volumes in the European Union (EU) for 2023 to indicate zero growth. This adjustment is primarily attributed to a stronger-than-anticipated performance in the first half of the year, with construction volumes remaining robust.

To justify this upgraded forecast, ING pointed out that construction production in June 2023 was on par with the same period the previous year. Additionally, there is a healthy backlog of work, with 8.9 months’ worth of guaranteed projects at the start of the third quarter of the current year.

However, ING has issued a warning regarding “clear signs” of a decline in volumes, with both homebuyers and companies displaying reluctance to invest in new construction projects due to economic weakness, high-interest rates, and rising building costs. The extended lead times in the construction industry mean that this decreased demand will take time to manifest in construction output volumes.

Manufacturers of cement, bricks, and concrete have already started to witness significant drops in production, with an average decrease of 13% across the EU in June compared to the same period the previous year. Consequently, ING forecasts a “modest” 1% decline in EU construction volumes for 2024.

On a more optimistic note, ING anticipates that the renovation market will offset the decline in new construction. The demand for renovation and maintenance, which constitutes over 50% of total construction production, is less susceptible to economic fluctuations. ING also suggests that factors related to sustainability and energy will contribute to the growth of the renovation and maintenance market. Government support for sustainability initiatives and high energy prices are expected to provide additional incentives for this sector.