European Construction Slows in 2023 as Demand Falls

The decline in demand in 2023 causes a slowdown in construction across Europe.

According to ING, a significant drop in demand for new buildings in Europe can be attributed to the region's high loan rates and rapidly rising construction costs. Up to this point, current projects and a heightened focus on sustainability have prevented construction volumes from dropping. However, we anticipate that a significant decline will manifest in 2024 and continue for the following decade.

There will be no growth in 2023.

This represents an increase from ING's previous projection and is primarily attributable to a better-than-expected first half of the year. ING anticipates that construction volumes in the EU will not grow at all this year. The importance of construction work is still at a high level. Compared to the same month the previous year, construction output in the EU was stable at the same level in June 2023. At the beginning of the third quarter of this year, businesses had a robust backlog of work of 8.9 months' worth of assured contracts. This indicates that business is now vital.

However, there are obvious signals that volumes will start to fall shortly as the late cyclical nature of the sector begins to take effect, according to ING. This effect will start to take place sooner rather than later. Homebuyers and businesses hesitate to invest in new premises due to the worsening economy, rising borrowing rates, and rising construction prices. Because of the extensive lead times involved, it may be some time before these effects are reflected in the total volume of construction output.

A potential slowdown in growth is on the horizon for 2024.

According to ING's projections, producers of cement, bricks, and concrete — companies located directly at the beginning of the value chain — are already suffering significant drops in production. Compared to the output levels seen during the same month in the previous year, building material providers are reporting an average decline in production of 13% in June. The Netherlands (-19.5%), Germany (-15.6%), and Austria (-15.0%) are experiencing the most percentage points of decrease.

A drop in the number of building permits issued, a decrease in consumer confidence, and a reduction in consumer demand indicate that construction activity will fall in the second half of 2023 and 2024. However, ING forecasts that the construction industry in the EU will only experience a moderate fall of -1% in 2024.