The European Construction Industry Federation- FIEC released its 67th Statistical Report. It revealed that while each of the European Union’s 27 countries, along with Norway, Switzerland, and Ukraine- EU27-plus, displayed distinct strengths and weaknesses in the construction industry, the overall industry on the continent has struggled due to a declining residential build segment.
The report indicated that more than three million enterprises employ 12 million laborers in the region. Of those enterprises, 95% have fewer than 20 workers. The construction sector represents 5.5% of total employment and accounts for 48.7% of the gross fixed capital formation- GFCF across the EU27-plus countries.
The FIEC report also noted that new housebuilding and residential renovations constitute the bulk of EU27-plus construction activities, with a combined share of 50.2% in 2023. Renovations alone make up 30.3% of this total. Non-residential construction, representing 31.8% of activity in 2023, emerged as the highest among the four categories tracked by FIEC.
FIEC observed that the construction sector across Europe is contracting, with many countries experiencing weak growth or outright contraction. The reductions reached crisis levels in 2023, and projections for 2024 appear pessimistic. Despite a modest 0.4% growth in the Euro and a slight increase in employment- 0.3% in the final quarter of 2023, FIEC pointed out that real GDP growth in the EU was only 0.4%, half of the projected 0.8%.
FIEC expected that the construction sector across Europe which happens to be historically more resilient throughout the economic downturns, to contract by 2.3% in 2024. Total investment in construction began to slow in 2022, contracting by 0.3% last year. The report cited Bulgaria and Sweden as having experienced significant declines, with reductions of 9.8% and 5.6%, respectively, in 2023. Sweden’s ongoing crisis in housing construction was highlighted as a primary cause of this downturn.
Rüdiger Otto, chairman of the FIEC Economic and Legal Commission, expressed that the outlook for new home builds was particularly bleak in the Nordic countries. Otto mentioned that companies in many EU countries have found government measures to address the housing crisis inadequate. New housebuilding, after reaching record-high investment levels in 2021-2022, has fallen to its lowest level since around 2017. It is expected to have decreased by 6.2% last year, with an anticipated 8.6% reduction by the end of 2024. Even when including renovation statistics, the entire residential segment is predicted to fall by 2.9% in 2023 and 5.8% in 2024. Sweden’s homebuilding industry, in particular, saw a 37.2% decline in new residential construction last year.
The report added that government measures have been insufficient and ineffective in combating the crisis in residential construction, leading to failures among small companies in this segment. Many companies are shifting to other segments. Finland faced a similar situation, with a 36% shrinkage in the segment last year and a 50% drop in the number of residential permits. Denmark and France also exhibited worrying trends, with declines of 13.8% and 8.0%, respectively.
Otto noted that the residential construction crisis, accounting for a fifth of the construction sector, has the potential to negatively impact employment in the sector. Employment numbers in the sector are falling in some EU countries, and small enterprises are exiting the sector.
Despite the grim outlook, FIEC identified some positive aspects that could offer a course correction in the coming years. The renovation segment has the potential to drive growth in the construction sector in the longer term, as building renovations are central to European and national climate policies. In the short term, renovation and maintenance demand, coupled with government support for sustainability measures, could make this segment less vulnerable to economic cycles. FIEC suggested that renovation activities mitigated the decline in residential construction.
Certain segments showed progress, with the civil engineering segment growing by 3.8% and an expected additional increase of 4% in 2024. Non-residential construction grew modestly by 1.5% and is projected to remain flat in 2024.
The report also highlighted regional strengths, noting that Italy and Spain displayed resilience, with growth of 1.3% and 2.1% in their housing sectors, respectively. Greece experienced the highest overall growth in 2023- +21.2%, partly due to the implementation of projects under its Recovery and Resilience Plan. The Czech Republic and Lithuania also showed trending growth, with increases of 8.2% and 11.9%, respectively. In addition, Bulgaria’s construction sector, despite three consecutive years of contraction, is expected to rebound by 19.6% this year.
