Central Eastern Europe Construction Market Report 4Q 2023
Czechia
Local economic indicators
Czechia’s gross domestic product (GDP) in 3Q 2023 showed negative growth of -0.6% (seasonally and calendar adjusted; market prices) in a year-over-year (YoY) comparison, attributed to reduced domestic growth rates as reported by the local statistical office. Similarly, the quarter-on-quarter growth recorded a shrinkage of 0.3%, attributed to a generalised decrease in gross value added (GVA) across most economic activities.
While detailed data for 3Q is yet to be published, 2Q GVA indicated that construction grew 0.1 percentage points over 1Q 2023 and retracted 2.8 points YoY.
The Organisation for Economic Co-operation and Development (OECD) maintains a yearly GDP forecast of 0.3% in 2023 and 2.4% in 2024.
The most recent data available on the Czech Statistical Office website shows inflation at 8.5% YoY in October, a continued decline since January’s peak at 17.5%. The Eurostat Harmonised Index of Consumer Prices (HICP) has produced similar results, with a peak in January (19.1%) and a steady decline to September’s 8.3%.
The OECD maintains its original inflation forecast, where it anticipates 4Q inflation to reach 10% and an overall annual inflation of 12.2%. From September’s figures, it appears that Czechia may produce better recovery results than anticipated.
Construction materials
The construction work price index (CEN053/6, 3Q estimated data), as reported by the Czech Statistical Office in September 2023, shows a continuing trend of stabilised inflation month-over-month (MoM) since April, at less than 1% every period (index a). Overall, the last twelve months have resulted in an 8.2% increase in construction work prices (index d).
September Industrial Producer Pricing saw a decline from August across all construction materials Gleeds monitors. Clay building materials saw the largest drop of 2.11%.
Environmental, social and governance (ESG)
Across the Czechian construction market, ESG and sustainability are hot topics for which many companies are gradually preparing. However, the activity is primarily from large corporate companies and financial institutions. The move forward is relatively gradual and will probably continue slowly until the mandating of individual requirements in Czech legislation.
The specialised requirements have been further boosted by the recent approval of the new non-financial reporting standards (ESRS - European Sustainability Reporting Standards). ESG reporting is not only a medium to large company obligation but will also apply to smaller ones, such as subcontractors of larger general contractors (GCs).
In real estate, EU Taxonomy and Technical Screening Criteria (TSC) are also trending topics. Financial institutions are making carbon footprints part of their decision-making process for financing projects, only considering “sustainable” those projects that meet the EU Taxonomy criteria markers. This significantly highlights the topic of energy efficiency of buildings as not only a source of reducing energy consumption and CO2 but also in reducing general operating costs.
In addition to all of the above, building certifications such as BREEAM, LEED and WELL continue to gain strength mostly in buildings destined for rental business models.
Market outlook
As mentioned above, the negative GVA in construction impacted the country’s GDP in 2Q, but the 3Q figures in the building construction production index produced positive growth at 0.4% (YoY; seasonally adjusted data) while civil engineering works retracted 0.6% (YoY; seasonally adjusted data), resulting in an overall positive YoY change of 1%.
The overall construction confidence indicator remains negative at -16.8 in October due to low work expectations (-11.1) and current order books (-22.5). In contrast to all other indicators, building activity in the past three months had a positive factor of 24.0. Price expectations, labour shortages, materials shortages, and insufficient demand all remain significantly elevated despite some price recovery shown in the industrial producer price indices.
As always, Gleeds advises regular project budget updates that take into account recent market pricing and local risk factors which may impact project programmes and costs. Undertaking risk analysis studies enables better evaluation and preparation of appropriate contingencies for your particular project conditions and risk exposure.
VŠCHT University of Chemistry and Technology, Prague, Czech Republic — Gleeds Quality Management, Quality Inspections, Technical Due Diligence services.
