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Europe’s Construction Industry Loses Impetus

Summary:
Europe’s construction industry is slowing down slightly. Construction activities are expected to grow by 2.7 percent this year, versus 3.9 percent last year, according to calculations by the Euroconstruct research network of which the ifo Institute is a member. The pace of growth will slow further in the mid-term, waning to just 1.4 percent at the end of the decade. “The causes of the slowdown include high capacity utilisation rates in construction, high residential real estate prices and economic policy risks like Brexit,” notes ifo expert Ludwig Dorffmeister. “Annual construction output has also already increased by a tenth over the past four years, partly reducing the backlog that had accumulated since the financial crisis,”

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Europe’s construction industry is slowing down slightly. Construction activities are expected to grow by 2.7 percent this year, versus 3.9 percent last year, according to calculations by the Euroconstruct research network of which the ifo Institute is a member. The pace of growth will slow further in the mid-term, waning to just 1.4 percent at the end of the decade.

“The causes of the slowdown include high capacity utilisation rates in construction, high residential real estate prices and economic policy risks like Brexit,” notes ifo expert Ludwig Dorffmeister. “Annual construction output has also already increased by a tenth over the past four years, partly reducing the backlog that had accumulated since the financial crisis,” he adds.

While building construction will slow down considerably between 2018 and 2020, there will be a marked spurt in civil engineering next year. Euroconstruct expects the segment to see record growth rates of around 4.5 percent. “Significant investments will be made in roads and rail, as well as in energy infrastructure. In addition to improved public finances, higher investment needs as well as European structural funding also play a key role,” explained Dorffmeister.

Although the overall environment will remain very favourable, construction demand will be far weaker than in recent years in several countries as the decade draws to a close. In some areas the upswing will end very soon. Construction activity can be expected to decline in three countries in 2019 and in five member states in 2020; namely Finland, Sweden, Slovakia, Hungary and Germany. “But in view of the market volumes already reached and the fact that the decline forecast is relatively modest, there is no reason to panic,” adds Dorffmeister.

The ifo Institute is Germany’s founding member of Euroconstruct, which brings together researchers from 15 western and 4 eastern European countries. Further information is available at: http://www.euroconstruct.org/ec/reports.

Article (in German)

  1. Dorffmeister, Ludwig, "Europäischer Bausektor: Aufschwung verliert bis 2020 spürbar an Kraft - Ausgewählte Ergebnisse der EUROCONSTRUCT-Sommerkonferenz 2018", ifo Schnelldienst 71 (13), 2018, 61–68 | Details | PDF Download

    Clemens Fuest
    Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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