EMEA economic overview
Gleeds’ central European offices have seen the impact of the war in Ukraine on the local construction industry as supply chains have been directly affected. However, that has not put a stop to the industry, with confidence in the sector remaining above that seen in 2020 during the COVID-19 pandemic.
As seen in the most recent Eurostat construction survey results, confidence in the sector remains above that seen in 2020 during the COVID-19 pandemic, with Slovakia showing very optimistic responses largely attributed to improved employment expectations at the local level. At the close of the second quarter, most countries indicated an increase in work during 2Q, supported by survey respondents indicating a decrease in materials and equipment shortages as a factor limiting building activity.
Global commodity pricing is also beginning to improve and return to mid-year 2021 rates in the areas most directly related to construction, such as aluminium and copper. Steel has reportedly recovered from the initial panic at the start of the war, even recovering January 2022 pricing rates in some areas. Respondents to the survey generally indicate an expectation for reduced prices over the next three months although we await this development with hopeful interest.
Although the data supports optimism in the construction sector, other factors continue to pose a threat as inflation rises and fears regarding fuel and energy shortages grow. The International Monetary Fund (IMF) recently published a warning of “gloomy developments in 2022 as risks [begin] to materialise.”
So, the question remains — will the construction industry remain stable in the face of so many global and economic challenges?
EDNA BENAVIDES
INSIGHTS & ANALYTICS, GLEEDS EMEA
Eurostat construction survey results
As we examine construction industry statistics in our quarterly EMEA market reports, here are five Central European markets from a broader, economic perspective:
Conclusion
Supply chain vulnerabilities have arisen due to geopolitical uncertainty in central Europe, namely Russia’s war on Ukraine; the result of bilateral dependencies, export restrictions, a lack of transparency and a concentration of specific raw materials — critical for both construction and industrial production, but only produced in particular countries.
The labour market across central Europe has also been abruptly crippled by the war in Ukraine. Before the Russian invasion, Ukrainians comprised the largest group of foreign workers in central Europe, with Poland and the Czech Republic hosting Ukrainian workforces of around 600,000 workers, according to Reuters.
Many of these Ukrainian workers have returned home to help the war effort. Radek Spicar, vice president of the Czech Federation of Industry, told Reuters, "The loss of Ukrainian workers has deepened the problems companies are facing".
Some central European countries have seen their GDPs continuing to improve, indicating a growing and strong economy despite these challenging pressures.
However, many general contractors are now requiring a contractual price clause to address current instability. Construction management as a procurement strategy can help reduce the risk of unnecessarily inflated contract pricing, whilst assisting contractors trying to protect their profit margins.
Gleeds strongly recommends that investors consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable. Remember, in any economy, regularly updating previously set project budgets is always advisable.
