Europe Construction Market Report 1Q 2024
Spain
Local economic indicators
Gross domestic product (GDP)
On 30 January, the Spanish National Institute of Statistics (INE) unveiled its preliminary findings for 4Q 2023, reporting that the country had experienced a 2% year-on-year (YOY) and a 0.6% expansion in GDP over the previous quarter. The construction industry's gross value added (GVA) was also reported to have demonstrated positive trends, with growths of 1.1% and 0.6%, respectively, over the same time periods.
The Organisation for Economic Co-operation and Development (OECD) has revised its GDP projections, raising the forecast for 2023 to 2.5% from 2.4%. Additionally, the outlook for 2024 has been adjusted from 1.4% to 1.7%, reflecting an anticipated bolstering of domestic demand.
Inflation
In January, annual inflation reported by INE climbed to 3.4%, marking a 0.3% percentage point increase from December's 3.1%. This upturn is attributed to the change in electricity prices compared to January 2023, although it was tempered by a decrease in fossil fuel prices from the previous year.
The Eurostat Harmonised Index of Consumer Prices (HICP) also showed a slight uptick, reaching 3.5% in January compared to December's 3.3%, while the OECD maintained its inflation forecast, projecting 3.5% for 2023 and 3.7% for 2024.
Construction materials
Eurostat's December data on industrial producer prices indicates overall stability in month-to-month pricing across several sectors. Noteworthy exceptions include increases in electrical distribution and steel tubing prices, along with a continued price recovery in flat glass manufacturing.
Electrical distribution has demonstrated the most significant price recovery YoY out of all the areas but, as can be seen from the index column, it still holds the highest level of inflation when indexed for December 2019.
It is paramount to regularly update project allowances as market pricing and conditions are changing weekly.
See the following table for month-over-month (MoM), YoY and indexed pricing inflation:
Market outlook
In January, Spain's construction confidence indicator witnessed a decline of 12.4 points, dropping from its December figure of 11 to -1.4. This decline is attributed to decreasing expectations for employment (6.9 in December vs. -8.9 in January) and order books (15 in December vs. 6 in January). Given these figures, it's not surprising that insufficient demand continues to be the most significant reported limitation for construction (53.4), highlighting the eagerness of Spanish contractors for demand to rebound to the levels they were once accustomed to.
Despite this decline in the construction confidence indicator, there are still signs of resilience in Spain’s public and private construction sectors. A prime illustration of this is the renovation of the Real Madrid FC stadium, along with its surrounding area and infrastructure. The stadium renovation, projected to conclude in late 2Q 2024, is anticipated to cost a total of 1.4 billion euros, reflecting a significant private investment. In response to this substantial initiative, the Spanish Government has initiated a comprehensive overhaul of the neighbouring metro station, planning to nearly triple its service area and vastly enhancing its accessibility. Having commenced in early February 2024, the metro station is slated for completion in 4Q 2027, with an estimated cost of 66 million euros. Currently catering to 4.3 million passengers annually, the station is posed to experience an increase in usage, particularly with the newly revamped stadium set to host cultural events in addition to football matches. It will be no surprise to see further investments in the newly renovated and improved area.
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.
Alfredo Mahou, Madrid, Spain — Gleeds provided Project Management services.
