Market Report 3Q/4Q 2022
Germany
Gross domestic product
Although Germany is experiencing reduced gross domestic product growth, it is exceeding previous forecasts for the year. Currently at 10.4%, inflation continues to rise, reaching new highs every term. The overall producer price index finally showed a slight decrease in October, perhaps indicating the start of the downturn in inflation rates. Further to this, the government has mapped energy price control mechanisms for early 2023 to ease overwhelming inflation.
Construction materials
While the overall producer price index has begun a downward trajectory, construction materials are experiencing delayed reaction, with steel tubes showing a very small saving.
As the government is expected to implement energy cost savings in 1Q 2023, contractors expect prices to stabilise or decline slightly in the first half of 2023.
Contracts
It is now common practice to agree price escalation clauses in contracts. The majority of general contractors (GC) also insist on open book procedure or negotiate individual prices on demand. As the order books for 2023 are still well-filled, a pricing downturn in new contracts is not expected. Contractual agreements are based more on securing agreed prices through advance payment or material ordering and storage.
Market outlook
The number of granted building permits for non-residential new construction projects have declined by an average of 9% year-on-year.
The construction confidence indicator is currently -6.3, the lowest since December 2020 (-7.5), with contractors indicating insufficient demand as the greatest cause limiting construction activity. While materials and equipment shortages remain challenging, respondents to the European Union monthly construction survey revealed this was a declining concern in 3Q 2022.
In the last quarterly report, Gleeds noticed an increase in GC interest to tender work, which can be linked back to the responses in the EU construction survey above. Contractors have an increasing appetite to secure work looking towards the second half of 2023 with an outlook to 2024.
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.
