Central Europe Construction Market Report 2Q 2023
Czechia
Local economic indicators
The Czech Republic managed to close 2022 with an overall positive gross domestic product (GDP) growth rate at 2.5%. Although the monetary value declined in every quarter throughout the year, the overall sum for the year still produced better results than those seen in 2021.
Running parallel to locally reported inflation, the Eurostat Harmonised Index of Consumer Prices (HICP) peaked at 19.1% in January 2023 while inflation was reported by the Czech Statistical Office at 17.5% the same month. These figures have steadily declined throughout 1Q 2023 with a 16.5% HICP in March and 12.7% inflation rate in April. The IMF has forecast declining inflation to reach 11.8% in 2023 and continued downturns approaching 2% during 2025.
Construction materials
The construction work price index, as reported by the Czech Statistical Office, shows stabilised inflation since September 2022, increasing an average 0.7 points month-over-month (MoM) whereas earlier months in the year averaged 1.7 points MoM.
In addition to previously reported declining industrial producer prices in structural steel and hollow steel profiles, sawn and planed wood saw an 18-point reduction from 4Q 2022 to 1Q 2023. As with many countries, electrical distribution saw large increases of points during this period.
Contracts
Rising interest rates are affecting contractors of all sizes. Advanced payments are a growing trend for smaller contracts, expected to spread to medium and large construction companies as a means to ease financing strains.
Another contract negotiating trend is increasing requests to reduce retention payments or use a bank guarantee as a replacement. Gleeds is advising clients to reach a combined solution that shares the risk amongst both parties (client and contractor).
Market outlook
Construction confidence is at its lowest rating since October 2020. Surveyed contractors are forecasting decreased demand and price increase expectations as the most influential challenges over the next three months.
Unsurprisingly, construction production has been erratic over the last twelve months, leaving companies and contractors at risk of closure. Successful management of new projects will be based on contractor pre-qualification exercises and early partnering.
Public sector works planned for NextGeneration EU projects will bring some stability to the industry, especially in the renewable energy sector as nearly €2 billion is reserved for updating energy supplies. Growth in the electrical sector has potentially inflated industrial producer prices as demand is ever-increasing for electrical distribution materials. Therefore, delays should be expected and considered in procurement and programme scheduling.
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.
Harfa Office Park, Prague, Czech Republic — Gleeds provided Employer's Agent/Contract Administrator/Client Representative, Project and Programme Control and Quantity Surveying/Cost Management services.
