Western Mainland Europe Construction Market Report 1Q 2023
Germany
Gross domestic product and inflation
While overall gross domestic product (GDP) growth in Germany declined during the second half of 2022, construction GDP rose throughout last year.
Following decline in the local inflation rate in December (8.1%), renewed increases have since been seen, bringing the rate up to 8.7% in February.
Germany’s parliament approved a €200 billion relief fund for gas pricing in mid-October which, coupled with high gas storage levels should bring optimism to the country. Six floating liquid natural gas (LNG) terminals are hoped to be in operation by the end of 2023 as part of Germany’s plan to end reliance on Russian gas. European gas prices fell below €50 per megawatt hour (MWh) in February, a stark contrast to the peak price of €350/MWh in August.
Construction materials
While the overall producer price index has continued a downward trajectory since its peak in September 2022, differing levels of change have been seen for construction materials. January data shows that wood and glass have recovered 20 and 30 points respectively. Electrical distribution has recovered over 90 points, while clay and concrete have both increased by an average of 12 points. HVAC works have seen the biggest increase at 32 points.
Shifts in costs of energy intensive materials are almost identical to changes in gas pricing. Continued improvements are expected following a mild winter and the relief funds which eased tensions.
Contracts
As supply chain issues resolve, price stability has been achieved, also helped by the utilisation of advance payment or early purchase agreements.
The majority of general contractors (GC) continue to prefer open book procedures or negotiating individual prices on demand.
As order books for 2023 are well-filled, a pricing downturn in new contracts is not expected but rather a return to previous standard contract conditions before price escalation clauses became common practice in 2022.
Market outlook
For the first time since September, the Eurostat construction survey shows optimism as contractors have finally reported positive work expectations for the next three months.
Other survey questions continue to reveal challenges and the overall confidence factor remains negative (-4.7), although improving from the record low of -11.7 in December 2022.
With an outlook to the second half of 2023 and going into 2024, contractors have an increasing appetite to secure work though there is strain on those investors reliant on third-party financing.
It is thought that increasing interest rates will likely decrease overall construction demand as projects struggle to balance costs and returns.
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.
TaunusTurm, Frankfurt, Germany — Gleeds provided Quantity Surveying/Cost Management.
