EU construction sector recovered slightly in Q1 – EUROFER

Despite weak demand for housing, the sector is supported by public investment and NextGenerationEU programs

The European Union’s construction sector showed slight growth in Q1 2025 after four consecutive quarters of decline. According to the European Steel Association’s (EUROFER) report “Economic and Steel Market Outlook Q3-2025,” construction volumes rose by 0.2% compared to the previous quarter, indicating a partial recovery of the market after a sharp decline in 2024.

The main constraints remain the high cost of construction materials, labor shortages in a number of EU countries, and general economic uncertainty.

Additional pressure is created by higher interest rates, which significantly cooled demand for residential construction in 2022-2023. Although the ECB has already made eight consecutive cuts to its base rates, the effect of monetary policy easing is delayed and is primarily felt in the mortgage lending segment.

Investment in residential construction fell by 1.5% in the first quarter, marking the tenth consecutive quarter of decline. At the same time, more positive dynamics were recorded in civil construction, where investment volumes increased by 1.8%. This segment is supported by NextGenerationEU programs, the implementation of which is being accelerated as the deadline for using the funds approaches the end of 2026.

Overall, the construction industry is forecast to grow slightly by 0.4% in 2025, following a 2% decline in 2024. A real recovery is expected in 2026 (+2.3%), driven by the effect of a prolonged policy of lowering interest rates and the implementation of large-scale infrastructure projects. However, confidence in the sector remains low: the construction confidence index has been in negative territory since March 2022.

Thus, the short-term outlook for the construction industry remains subdued, with government support for investment and easing financial conditions being the main drivers of growth.

It should be noted that production in the European Union’s construction sector fell by 0.5% in June 2025 compared to the previous month. Compared to June 2024, the seasonally adjusted figure increased by 1.9%.