How are local construction markets rerouting to face new challenges?

In our last report, we asked if the mild winter was calming nerves. Had improved gas supplies and storage been enough to improve local construction outlook?

Approximately three months later, the construction confidence indicator has produced small improvements in Czechia, Hungary, Poland, Slovakia and Romania. Slovakia has even reached a positive figure of 0.5, a first since August of 2018. This is largely attributed to improved employment expectations for the coming quarter despite ongoing challenges with inflated materials pricing.

Following peak inflation rates across all five countries, slow recoveries appear to have begun. However, some countries still have a way to go if they are to meet the International Monetary Fund’s forecasts. With the year almost halfway through, inflation must experience extreme drops in the coming months, especially in Hungary and Poland which still need to recover approximately seven points to meet these predictions.

While some private investors and developers hesitate to re-start stalled projects, the EU Recovery and Resilience Facility will play a critical role in maintaining the industry for smaller contractors looking to fill their order books. Unfortunately, these projects have been slow to start and the strain on the industry is evident in the ongoing low confidence ratings shown in the Eurostat construction confidence indicator graph below.

Fluctuations in the Industrial Producer Price Index are difficult to generalise as pricing is now experiencing the impact of local factors; a change from the global challenges shared across most countries during the COVID-19 pandemic and the start of the war in Ukraine.

Our Gleeds Poland advisors forecast construction growth for the remainder of the year. Construction cost index data in Romania indicates a small recovery (-0.5%) and Czechia is bringing a collaborative spirit in negotiating shared risk mechanisms like advanced payments and reduced retention conditions to see projects to completion.

As global, macro-economic factors have stabilised, central Europe can now focus on navigating local challenges and reroute as needed to reach everyone’s destination and see successful project completion.