Adapting to changing conditions

As with any forecast, sometimes they become a reality, but many times they require revisions. It was easy to find several 2023 forecasts at the end of 2022 that said the same thing — inflation recovery was in most countries’ futures. Italy and Portugal were the only ones in our five featured countries to enjoy first quarter recovery. France, Germany and Spain all saw small rises in inflation before seeing some recovery in 2Q.

Many held their breath until the release of 1Q gross domestic product (GDP) results in early April. Germany quickly calmed jittery economists when they reported negative GDP results, reminding readers of its GDP press release that one negative quarter does not mean the country is in recession. In its most recent GDP report, Germany uses the words “stagnant” and “slight drop” to describe its situation. Construction and real estate, however, show positive gross value add (GVA) figures over the last quarter. France, Italy, Portugal and Spain all saw small but positive GDP results in the first three quarters of the year.

As many investors decided to wait and see what happened in the first half of 2023, others found reasons to stay on the course of their business plans — hotel refurbishments in major tourist destinations are thriving; data centre projects are leading headlines in many EU countries; and carbon targets are driving investments. Some of these sectors are even causing professional labour shortages as designers, engineers and consultants are in high demand.

While the drafting of projects is ongoing, contractors haven’t always been confident work is within reach. Construction confidence indicators have fluctuated in all five of our featured countries. Italy (8.2) and Spain (9.8) were the only two to report positive confidence levels. Italy, Portugal and Spain all stated positive work expectations, but the current overall order books of Germany (-29.8), France (-21.4) and Portugal (-9.8) are leaving contractors craving work.

Despite some hesitance and uncertainty, the monthly construction production index (seasonally and calendar adjusted; NACE Rev. 2), as reported by Eurostat, shows that France (0.4%), Portugal (4.6%) and Spain (3.5%) experienced YoY growth. In comparison, Germany (-0.1%) and Italy (-0.1%) experienced the same level of shrinkage.

So, as we enter the last month of the year and look ahead to 2024, has Western Mainland Europe proven to thrive through change? I think it has — it has definitely done better than many predicted twelve months ago.