Construction in the EU will decline by 1.3% y/y in 2024 – EUROFER

Production in the EU construction sector will decline by 1.3% in 2024 compared to 2023. This forecast was published by the steel producers’ association EUROFER in its Economic and steel market outlook 2024-2025, Q4.

In 2025, the sector is expected to recover by 1.3% y/y. At the same time, the previous forecast for 2024 was -1.4% y/y, and for 2025 – +1.8% y/y.

The decline in activity in the construction sector, which began in the third quarter of 2022, persists amid rising interest rates and economic uncertainty. The ECB’s rate hikes in 2022-2023 had a significant impact on the demand for residential construction, which has been showing negative dynamics for the ninth consecutive quarter. For example, investments in residential construction in the second quarter of 2024 decreased by 4.1% compared to the previous year.

Despite the fact that the ECB has recently cut interest rates three times, the effect of this is expected to be felt only in the future, and high rates are expected to continue to weigh on the sector until the end of 2024. At the same time, investment in other construction subsegments, especially civil engineering, is showing some recovery. In the second quarter of 2024, this sub-segment grew by 0.8% after a decline in the previous quarter.

The forecast for 2024-2025 indicates that EU governments will continue to support the sector through infrastructure projects, but overall government support will decrease due to budget constraints and rising prices for construction materials. This, in turn, may negatively affect construction confidence in Europe, which has already shown a decline in September 2024.

In addition, the private segment of non-residential construction remains weak, as investors remain cautious about investing in new office and commercial projects. During the pandemic, the non-residential sector was the most vulnerable and faced high vacancy rates, and although some recovery has taken place, the overall dynamics remain subdued.

Looking back at past trends, it is worth noting that the growth of the construction sector, which began in late 2020 and lasted for eight quarters, ended in the third quarter of 2022. Then, after the peak performance in 2021, driven by significant government support, the sector came under pressure again due to economic difficulties, rising material costs, and labor shortages.

Thus, construction in the EU is expected to remain in recession in 2024, although the rate of decline will be somewhat less sharp than previously forecast.

In August, construction in the EU increased by 0.4% compared to the previous month. Compared to August 2023, the seasonally adjusted figure decreased by 2.4%. The largest monthly growth in construction in August was recorded in Sweden (+7.2% m/m), the Netherlands (+6.3% m/m) and Romania (+4.7% m/m).

The average annual production in EU construction in 2023 increased by 0.1% compared to 2022.