Europe Construction Market Report 1Q 2024
Germany
Local economic indicators
Gross domestic product (GDP)
The Federal Statistical Office of Germany (Destatis) reported that the country's GDP experienced a downturn in 4Q, contracting by 0.2% year-over-year (YoY), price and calendar adjusted, and 0.3% over the previous period, 3Q.
Concurrently, the latest data released in January regarding gross value added (GVA) by industry indicates positive trajectories in both construction and real estate activities. Construction markedly improved with a 0.2% YOY increase, rebounding from a notable decline of 3.3% in 2022. Similarly, real estate activities showed resilience, recording a 1% rise, a 0.2% improvement from their observed growth of 0.8% in 2022.
Insights from Deutsche Bundesbank's most recent report suggest that German economic output likely experienced a more pronounced decline in the fourth quarter of 2023 than initially anticipated, attributed primarily to subdued domestic and foreign demand. Despite these challenges, the Organisation for Economic Co-operation and Development (OECD) has maintained both its GDP forecasts of -0.1% for 2023 and 0.6% for 2024.
Inflation
January data from Destatis indicates a continued slowdown in inflation, dropping to 2.9% — the lowest rate since June 2021 (2.4%), with energy prices continuing to decline even after the cessation of the brake on energy prices and the implementation of a higher carbon price.
Germany's average annual inflation for 2023 stood at 5.9%, marking a decrease from the previous record high of 6.9% in 2022. Similarly, Eurostat's Harmonised Index of Consumer Prices (HCIP) registered an average of 6% in 2023 and 3.1% in January. The OECD maintains its inflation forecast of 6.2% for 2023 and 2.7% for 2024.
Construction materials
The Eurostat local industrial producer price index reports relative stability in most areas, with the exceptions of electrical distribution and HVAC which saw significant month-over-month (MoM) increases between December 2023 and January 2024.
Regarding YoY data, glass, wood and electrical distribution registered the strongest price recoveries; however, as can be seen from the index column, electrical distribution and HVAC values remain persistently high.
It is paramount to regularly update project allowances as market pricing and conditions change weekly. It is paramount to regularly update project allowances as market pricing and conditions change weekly.
See the following table for MoM, YoY and indexed pricing inflation:
Market outlook
The January construction confidence indicator, at -23.1, though still low, marks an improvement from December's yearly low of -25.7, the first positive movement since March 2023. This shift was driven by a notable enhancement in employment expectations, from -14.1 in December to -7.7 in January, slightly tempered by a minor decline in order books from -37.2 to -38.4. Respondents cited insufficient demand, 41, as the primary limitation on building activity while expressing more optimism regarding labour shortages, now at its lowest, 26.9, since June 2023 when it was 20.4.
These findings were corroborated by the Deutsche Bundesbank, which released a report quoting the results of an ifo (Leibniz Institute for Economic Research at the University of Munich) survey. The survey indicated a continued rise of firms in the construction industry reporting order shortages, adverse weather and increased financing Costs, the last of which is believed to have hindered investment, particularly in housing construction.
As Germany continues to advance towards the goals agreed upon in the 2030 Green Deal, projects to modernise its power grid to embrace renewable energy sources are well underway. Work on laying the world's longest underground electrical cable, spanning 700 kilometres, began in October and is slated for completion in 2027 with a predicted budget of €10 billion. This upgrade will enable the seasonal transfer of wind energy from north to south and solar energy from south to north and will provide energy to around 10 million homes. Additionally, Germany and the UK are directly connecting their power grids through a subterranean and suboceanic cable, promoting clean energy exchange between the two largest European economies. In 2023, Germany generated more than half of its energy, 55%, from renewable sources for the first time, noting an increase of 6.6% on the previous year and is moving towards its goal of 80% by 2050.
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. Undertaking risk analysis studies enables better evaluation and preparation of appropriate contingencies for your particular project conditions and risk exposure.
Taunus Tower, Frankfurt, Germany — Gleeds provided Quantity Surveying/Cost Management services.
