Europe Construction Market Report 1Q 2024
Slovakia
Local economic indicators
Gross domestic product (GDP)
Slovakia’s GDP grew by 1.2% in 4Q 2023 (seasonally adjusted; constant prices) in a year-over-year (YoY) comparison and 0.3% when compared to the previous time period, 3Q 2023.
As reported by Eurostat, the gross value added (GVA) for the construction industry grew by 5.6% YoY and, in 4Q 2023, accounted for 6.7% of total GDP, a 0.6% increase YoY.
The Organisation for Economic Co-operation and Development (OECD) has revised its original forecasts downwards from 1.3% to 1.1% in 2023 and from 2.0% to 1.8% in 2024.
Inflation
The Statistical Office of the Slovak Republic has reported that the average inflation rate for 2023 stood at 10.5%, marking the fourth-highest value recorded in the past 30 years. However, this figure exhibited a consistent decline throughout the year, starting from its peak of 15.4% in February and reaching its bottom point of 3.9% in January.
Eurostat's Harmonised Index of Consumer Prices (HICP) corroborated these fluctuations, aligning closely with the yearly high and low, and has indicated a January figure of 4.4%. The OECD has maintained its inflation forecast for 2023 at 11.1% and has also predicted an average inflation of 5.2% in 2024.
Construction materials
The industrial producer price index reveals significant YoY price hikes in glass, HVAC, and electrical distribution, alongside noteworthy price rebounds in wood, clay and steel tubes, while other prices have largely maintained stability.
Notably, HVAC and electrical distribution prices continue to remain significantly elevated compared to pre-pandemic levels, as evident from the index column, and based on month-over-month (MoM) and YoY figures, there is no indication of them easing anytime soon.
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 witnessed a marked improved in January compared to its yearly low in November of -19.5 and it’s December reading of -16.5, rising to -10. This upward shift was driven by the reported enhancement in employment expectations from -17 in December to -3 in January. However, the size of said upward movement was moderated by a slight deterioration in order books, declining from -16 in December to -17 in January.
With regards to the factors limiting building activity, the most prominent continue to be insufficient demand, labour shortages and financial issues, which recorded figures of 34, 31 and 31, respectively, in January. While the figures for insufficient demand and financial issues have remained stickily high throughout the year and January, with averages for 2023 standing at 31.3 and 33.4, respectively, it’s worth noting that the reported figure for labour shortages in January exhibited significant downward movement from its 2023 average of 36.8.
The recent change in government in Slovakia has prompted a re-evaluation of priorities, leading to a temporary postponement of new construction laws and difficulties with financing. Gleeds actively monitors both factors and advises clients on how to best safeguard their projects while changes are confirmed. As this has caused a slowdown in planned construction activity, it’s viewed as a necessary step to ensure smooth implementation in the future. And although there is a perception that construction output has declined and vacancies are emerging, there is cause to be optimistic as many large public projects, supported by the EU recovery fund, have experienced initial delays, but their eventual start is anticipated to have a positive impact on the market.
Gleeds recommends revising previously set project budgets to present-day figures based on local statistical information, our own internal data and 1Q 2024 forecasts. Additionally, we advise investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
Eurovea, Bratislava, Slovakia — Gleeds provided Construction Management and Quantity Surveying/Cost Management services.
