Europe Biannual Construction Market Report 3Q/4Q 2024
Slovakia
Top opportunities:
Green Deal: Opens the space for consultancy services of Green Deal agenda implementation.
Environmental, social, and governance (ESG) considerations: There is greater awareness and demand for ESG principles on developments and projects.
Public investment: The Slovak government has announced huge infrastructure projects (e.g., nuclear power plant, liquefied natural gas terminal).
Top risks:
Movement in the car industry: Low demand for electric cars causing some car producers to halt production.
Russian factor: Foreign investors are afraid of investment in a country with significant Russian influence.
New legislation: The new construction legislation has been postponed by a year, but the roadmap for such significant change in both the private and public sectors is missing.
Local economic indicators
Gross domestic product (GDP)
Slovakia’s economic landscape in the first quarter of 2024 was marked by a notable 2.7% year-over-year (YoY) increase in GDP, as reported by the Statistical Office of the Slovak Republic. Seasonally adjusted and measured at constant prices, this growth also represents a 0.7% rise compared to the previous quarter (4Q 2023).
Eurostat data paints a contrasting picture for the construction sector, where the gross value added (GVA) experienced a 3.1% YoY decline. However, there was a slight 0.1% uptick compared to the previous quarter. Despite these mixed signals, the construction sector continues to play a significant role in the economy, contributing 6.7% to Slovakia’s overall GDP in 1Q 2024.
The Organisation for Economic Co-operation and Development (OECD) has maintained its GDP growth forecast for Slovakia at 2.1% for 2024, with an optimistic outlook for 2025, predicting an increased growth rate of 2.7%.
Inflation
Inflation trends in Slovakia have shown a promising decline, with the Statistical Office of the Slovak Republic reporting that May's inflation rate of 2.2% was the second lowest level recorded in the past three years. On a month-over-month basis (MoM), inflation was reported as having increased 0.1%, rising from 2.1% in April 2024.
This small increase in inflationary pressures is primarily attributed to rising prices in alcohol, tobacco and fuel, which was counterbalanced by stagnating or slightly decreasing housing and energy prices. Eurostat's harmonised index of consumer prices (HICP) confirmed these movements, indicating an inflation rate of 2.4% in May. Looking at the next couple of years, the OECD has lowered its 2024 inflation forecast to 2.9% and has further predicted an increase to 3.3% in 2025.
Construction materials
An analysis of the industrial producer price index reveals a significant YoY price recovery across various Slovakian industrial producers, particularly in HVAC and electrical distribution, where prices have fallen significantly, 26.5% and 31.1%, respectively.
Despite these declines, prices for HVAC and electrical distribution remain relatively high when indexed for December 2019.
The table below, with data from the Statistical Office of the Slovak Republic, shows the change in cost indices MoM, YoY, and lastly, with respect to the start of the global pandemic:
Market outlook
The construction confidence indicator in Slovakia had been showing a steady and encouraging improvement throughout 2024, rising from a low of -10 in January to -4 in May; however, it fell to -7 in the most recent figure for June. This positive trend was primarily attributed to enhanced employment expectations, which surged from -3 in January to 9 in May, coupled with relative stability in the evolution of current overall order books which fluctuated between -17 and -21 over the same period. However, the decline witnessed between May and June was mainly driven by the evolution of current overall order books worsening from -17 to -22 and a slight fall in employment expectations over the next three months from 9 to 8. Despite this overall positive trend in 2024, insufficient demand remains a significant factor limiting building activity, having consistently hovered around the mid-thirties throughout 2024, with a figure of 33 reported in June. However, a more optimistic note can be seen in the improvement of price expectations, which had steadily decreased MoM from 22 in January to 12 in May, reflecting the improving inflationary situation in the region before increasing slightly to 14 in June. The recent change in Slovakia's government has led to a reevaluation of priorities, causing a temporary postponement of new construction laws and creating some financing challenges. Despite a perception of declining construction output and emerging vacancies, optimism remains due to large public projects backed by the EU recovery fund. These projects have experienced initial delays but are expected to positively impact the market once they commence. Additionally, the anticipated decrease in interest rates is expected to rejuvenate the residential market. While there are many positives regarding the Romanian construction industry in 2024, there are still challenges to overcome; however, with careful management and strategic planning, these challenges can be navigated effectively. As always, Gleeds advises regular project budget updates that consider recent market pricing and local risk factors that may impact project programmes and costs. Undertaking risk analysis studies enables better evaluation and preparation of appropriate contingencies for your particular project conditions and risk exposure.
Eurovea, Bratislava, Slovakia — Gleeds provided Construction Management and Quantity Surveying/Cost Management services.
