Central European Construction Market Report 1Q 2023
Czech Republic
Gross domestic product
The Czech Republic maintained positive gross domestic product (GDP) growth through 3Q 2022, even showing an improved rate of change over 2Q 2022.
The local Consumer Price Index (CPI) experienced a slight decrease in December (16.8%) with respect to that in November (17.2%), for a year-end average of 14.8%. Inflation in December maintained an overall downward trend at 15.8% from the year’s maximum at 18% in September.
The Organisation for Economic Co-operation and Development (OECD) maintains its forecast that Czechia has left record-breaking inflation behind and is beginning a downward trend.
Construction materials
Some industrial producer prices experienced a decrease in December from their peak pricing throughout the year, including structural steel and hollow steel profiles. Clay building materials underwent the highest price increase at 40% from January to December.
Global commodity pricing saw some small upward increases at the end of 2022 but remains significantly lower than the maximum pricing generally reached towards the start of 2Q 2022.
Contracts
Inflation clauses have become commonplace in Czechia, although recent supply chain stability has reduced client risk and this is no longer a primary concern.
In response to increasing interest rates, contractors are now more inclined to request improved payment terms, reduced retentions and shortened bank guarantee requirements.
Market outlook
The construction confidence indicator showed a small upward change, perhaps in response to ongoing work availability, as can be seen in the construction production index which is still in recovery from the pandemic and war in Ukraine.
Unemployment is expected to rise among smaller contractors and self-employed specialists as projects exposed to the effects of rising interest rates have been put on hold, as seen in the residential sector. Office fit-out construction is delayed as many projects have had to re-evaluate design requirements for post-COVID office space needs. Smaller developers are beginning to look for new investment opportunities outside of real estate, possibly leaving long-established developers at an advantage.
In response to the forecast challenges, larger contractors are turning their focus towards public sector projects planned from NextGeneration EU funding. The Czech Republic was initially granted €7 billion, of which nearly €2 billion of investment is anticipated for energy efficiency projects such as installing renewable energy sources. A further 22% was allocated to digital transformations including 5G network development and €823 million was reserved for new hospital construction, updating medical equipment and long-term care initiatives.
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. Risk analysis studies are recommended to better evaluate and prepare appropriate contingencies for your particular project conditions and risk exposure.
University of Chemistry and Technology, Prague, Czech Republic
