Western Mainland Europe Construction Market Report 2Q 2023
Germany
Local economic indicators
Data from the Federal Statistical Office of Germany (Destatis) shows that the country closed 2022 with an overall gross domestic product (GDP) growth rate at 1.8%, approximately 30% less than 2021. Destatis reported 1Q 2023 GDP at -0.3%, a second consecutive quarter with negative growth, fulfilling one definition of “recession”.
The Organisation for Economic Co-operation and Development (OECD) forecast GDP growth for 2023 at 0.3% in its March report, A Fragile Recovery.
Annual data from Destatis for May 2023 shows 6.1% inflation, an improvement from January (8.7%). The Eurostat Harmonised Index of Consumer Prices (HICP) has seen even greater recovery between January (9.2%) and May (6.3%).
Additionally, the International Monetary Fund (IMF) estimates overall inflation in Germany to reach 6.2% — perhaps Germany can deliver even better results in the second half of the year.
Construction materials
The local industrial producer price index, as reported by Eurostat, reveals some ongoing price recovery in wood, flat glass and electrical distribution from December 2022 to April 2023. Clay and concrete building materials have increased every month this year and Gleeds recommends ongoing monitoring. Steel tubes appear relatively stabilised while HVAC is showing ongoing increases.
It is generally thought that prices of materials essential to energy efficiency in buildings are tending to increase, due to high demand and production bottlenecks. However, it can be assumed that material prices will remain stable, although at a high level, for the second half of the year.
Contracts
High prices, coupled with skilled worker availability, is leading to a switch from general contractor to individual package contracts. International investors are leaning more towards design-build contracts, whereas in the domestic market, individual contracts are once again being awarded more frequently.
In general, order books are well-filled for 2023 although prices are more moderate.
Market outlook
A Destatis press release in May reveals that the construction industry was responsible for the largest gross value add to GDP at 6.1% in 1Q 2023, largely due to the mild winter. In contrast, the construction confidence indicator has maintained a negative figure in May, currently at -2.9.
Surveyed contractors are predicting conservative work expectations (6.0) although a considerable improvement from December’s -10.6.
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. Risk analysis studies are recommended to better evaluate and prepare appropriate contingencies for your particular project conditions and risk exposure.
TaunusTurm, Frankfurt, Germany — Gleeds provided Quantity Surveying and Cost Management services.
