The 2019 Winter EECFA Construction Forecast Report has been released. It can be purchased, and a sample report can be viewed at www.eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries.
Southeast Europe
Building construction market of the Balkan countries of EECFA is in prosperity phase. In the 2016-2019 period the market size expanded by 30%. We think that the current cycle is getting closer to the peak and for the upcoming 2 years we foresee a deceleration. One extreme is Serbia’s building construction market. It well outperformed the rest of the countries in the past 4 years and hardly sees any further expansion. As we are getting closer to the end of the current EU programming period, the civil engineering submarket is projected to contribute more positively to total construction market growth.
Bulgaria. Construction output in Bulgaria continues its recovery as both building and civil constructions are contributing. Residential construction is boosted by increasing real wages and low interest rates on housing loans which make buying a home more and more affordable. Persistent demand for contemporary office premises, along with the ongoing expansion of industrial and warehousing projects, will likely continue to be a tailwind for non-residential construction in 2019-2021. Civil engineering construction is forecasted to continue its upward trend in line with EU fund absorption. Growth here in the upcoming years will be fuelled by large transport infrastructure projects and the public utility sector. Total construction output is set to grow by 8.7% in 2019, and to add another 6.5% in both 2020 and 2021.
Croatia. Construction in Croatia is in transition. Some sectors are reaching the limits of catch-up growth. Others are only now beginning to benefit from it. While the direction and inevitability of this transition is clear, the timing is less so, with each sector likely to follow its own, unique path. This said, certain factors, among them emigration, the slowness of key reforms (especially regarding the judiciary), rising construction costs, the government’s ability to secure EU and other official funds and increased international competition for the tourists on which, for better or worse, Croatia’s economy relies, will affect all construction sectors. The outlook is by no means grim. Croatia is not nearly done with its transition, certainly not as far as construction is concerned. Many opportunities remain.
Romania. Romania’s construction subsectors have seen different trends. Residential and non-residential have been on a growth path for several years, while civil engineering has been declining since 2015. Residential construction should remain the main contributor to growth in the forecast period on the back of increased income and high demand for new construction, though regulatory and tax changes have slowed down the subsector. Romania’s economic growth, one of the strongest in the EU, and increased public consumption are feeding the need for new non-residential construction; however, increased skilled labour shortages and costs keep the segment in check, hindering development. For civil engineering, increased construction costs, elections and government changes counter much of the potential growth. Overall, construction across Romania is predicted to expand by 6.4% in 2019 but switch to a lower gear in both 2020 and 2021.
Serbia. Serbia’s expansion in construction outputs has extended now into a fourth year and there is more growth on the horizon. A strong double-digit growth has been recorded across the board in 2019 with civil engineering being stellar. Its growth in 2019 can be dominantly attributed to projects in the energy segment, but all other sub-segments in civil engineering are to reach extraordinary levels. Building construction is also breaking record highs in practically all categories. In 2019, both residential and non-residential buildings will be standing double levels from 2015 and this cycle won’t lose steam. Strong performance of large segments, like industry or commercial buildings, should drive outputs to new records up to 2021.
Slovenia. Following two years of very fast growth, construction industry in Slovenia will likely experience a slower growth of 5.7% in 2019 due to the general economic slowdown. As the economy will remain subdued, construction industry will remain at relatively high levels, but its growth will all but stop, increasing by 2.1% and 0.6% in 2020 and 2021. Residential construction is predicted to remain the most important growth driver as the economy reaches full employment and disposable income should increase. On the other hand, growth in overall civil engineering and non-residential constructions will likely be much slower, even though some existing large new projects such as new railway or overall road renovations will continue.
East Europe
The big picture in the 3 Eastern-European countries we cover is the exact opposite to that of the Balkans. This region as a whole experienced around 10% shrinkage in the building construction market from 2016 until the end of 2019. First Russia went through a tougher period and then Turkey, which experienced a drastic market collapse in 2019. For the upcoming 2 years we see a recovery for the region with the biggest growth expected in Ukraine. The civil engineering market of this region performed well in the 2016-2019 period, the overall expansion being 20%. The future is less bright, though. With negative growth in Turkey’s civil engineering market, the region as a whole may see no growth until 2021.
Russia. An intensive government funding within national projects is set to be the main driver for the construction industry in Russia in the near future. After the successes of 2018, mainly due to the statistical revisions and major infrastructure projects in preparation for the FIFA World Cup, in 2019 we are most likely to see a slight negative correction in the volume of construction market within -0.4%. This will be caused on the one hand by the effect of the high base in 2018, and the completion of many civil engineering projects in 2019 (Crimean Bridge, international gas pipelines, among others), on the other. In 2020-2021, positive dynamics is expected due to housing construction and the strong development of transport and energy infrastructure; the segments with the biggest volumes of subsidies. The initiation of many new civil engineering projects and the support of residential real estate developers are set to lead to an expansion in construction market volume by 1.9% in 2020 and by 3.1% in 2021.
Turkey. Turkey’s economy was shaken owing to the exchange rate rises that began in November 2016 so much so that in August 2018 they caused big surges in inflation, interest rates and construction costs, falls in real incomes and in demand for housing and commercial real estate. The economy posted negative growth rates for three quarters, beginning with Q3 2018, and returned to a small positive growth rate in Q3 2019. However, the construction sector appears to need more time to regain its usual workload as its share in GDP had negative growth rates for four consecutive quarters from Q3 2018 on. In the first three quarters of 2019, building construction permits were at a very low level, while building completions were not as bad as building starts, mainly due to the big backlogs of construction in almost every segment. Construction costs returned to single digits and optimism begins to develop in the construction industry. It is also expressed by the Turkish Construction Materials Industrialists Association (IMSAD) who in October 2019 reported positive rates of change in the volume of works, in new orders and in the confidence index from September to October 2019. Thus, the Turkish construction industry expects recovery to begin parallel with the other sectors of the economy.
Ukraine. Construction industry in Ukraine continues to have a positive momentum. This is facilitated by the government’s balanced fiscal and monetary policy, which has ensured stable economic growth for 12 consecutive quarters. The country has seen an improvement in confidence from domestic consumers and investors alike, in external trade conditions, and there is an easing military conflict in East Ukraine. Rise in business activity in the long term can ensure growth in investments in commercial infrastructure and growing public finances should stimulate development in social infrastructure and engineering structures. Priority in civil engineering has been and will likely remain the construction of roads, airports and ports, and energy efficiency. At the same time, the housing market is to some extent saturated, and its growth indicators in the future are most likely to be quite low.
Source of data: EECFA Construction Forecast Report, 2019 Winter
Contact information: www.eecfa.com, info@eecfa.com