Central Europe Construction Market Report 3Q 2023
Slovakia
Local economic indicators
The Organisation for Economic Co-operation and Development (OECD) reports that Slovakia achieved 0.2% gross domestic product (GDP) growth in 1Q 2023, the seventh continuous quarter with similar growth. The OECD’s recent Economic Outlook, published in June 2023, maintains a low forecasted annual growth rate for the year at 1.3% and cites slowing domestic demand as the contributing factor counteracting positive net exports. Both figures are expected to improve in 2024 and are predicted to produce an overall GDP growth rate of 2% in the coming year.
The most recent data available from the Statistical Office of the Slovak Republic shows inflation at 10.8% in June, the fourth consecutive month to produce declining rates since February’s peak at 15.4%. The Eurostat Harmonised Index of Consumer Prices (HICP) has produced similar results with a peak in February (15.4%) and steady decline to June's 11.3%. The OECD forecasts inflation to continue declining in the second half of the year reaching 7.4% by year’s end.
Construction materials
The industrial producer price index shows some price recovery since the start of the year in wood, clay building materials, steel tubes and structural metals, a welcomed change for specialty contractors.
Similar fluctuations, where clay and steel experienced savings, can be seen in the local FIDIC method price review indices:
Contracts
The rising cost of project financing presents a challenge for suppliers. With higher interest rates, banks and investors seek to mitigate risk and ensure pricing stability by establishing fixed prices at the beginning of a project. This places suppliers in a difficult position, as fixed pricing may not accurately reflect the changing costs and market conditions over a project’s duration.
Market outlook
The monthly construction survey shows some stability in the price expectation outlook as fewer people report expected increases (24 point improvement since January 2023). Materials shortages are no longer considered to be an issue (6 points) but labour shortages persist (38 points). The overall construction confidence indicator is nearly neutral, at -0.5 points indicating a general expectation for things to remain as they currently are. Work expectations over the next three months are positive at 14 points while, at the same time, order books are reported as insufficient (-15 points).
During challenging financial situations and a decrease in demand, it becomes crucial to carefully manage own costs, both in construction and building operations. To achieve the desired savings, it is essential to consider design proposals with a professional and detail-oriented mindset. Value engineering exercises are paramount.
One area that is often overlooked but holds significant potential for savings is the optimisation of operations, particularly in energy consumption and building operation settings, contributing to the overall financial health of the project.
By approaching design proposals and operations proactively, Gleeds can navigate through challenging times more effectively, ensuring cost-effectiveness and sustainability in our projects and building operations.
Eurovea, Bratislava, Slovakia — Gleeds provided Construction Management and Quantity Surveying/Cost Management services.
