The decline in activity is due to the heightening risk of recession and tightening monetary policy across the region, coupled with low investor confidence and high construction costs stemming from the Russia-Ukraine conflict, according to data and analytics company GlobalData.
Joel Hanna, economist at GlobalData, comments: “The European energy crisis is creating a very challenging environment for construction companies in Eastern Europe. In addition, slowing economic growth and an increase in borrowing costs will weigh heavily on the residential, commercial and industrial sectors, and continue to dent investor confidence.
“As a result, the overall construction activity over the coming quarters is likely to be impacted by stalling progress on current projects as well as a lack of new starts due to subdued investment. On the upside, EU funding, including the NextGenerationEU recovery fund, could help to partially offset the rise in borrowing costs in some markets and support the continuation of activity in transport and energy infrastructure development.”
In a new report GlobalData says that construction output in Russia – the region’s largest market – is forecast to expand marginally by 0.6% in 2022 before posting a sharp contraction of 6% in 2023. The second largest market, Turkey, is expected to contract by 8.1% and 3.3% in 2022 and 2023, respectively. Elsewhere, Poland and the Czech Republic are projected to grow by 4.9% and 2.9% in 2022, respectively, before posting respective contractions of 2.8% and 2.4% in 2023.
Hanna says: “Owing to strong growth in the first half of the year in some of the major markets such as Russia, Poland, and the Czech Republic, the annual growth rates for 2022 in these markets are expected to be positive, despite a significant fall in the activity in the second half of the year. However, the impact of tightening monetary policy, low investor confidence, and sustained upward pressure on construction costs will be reflected in relatively sharp contractions in 2023.”
In the case of Russia, the growth forecast for 2022 has been revised upwards from 8.5% due to unexpectedly strong levels of activity since its invasion of Ukraine. However, weakening public revenue owing to the depressed export activity is expected to weigh heavily on output over the next year.
“Following a weak performance in 2022 and 2023, GlobalData expects construction activity in Eastern Europe to rebound in 2024 reaching a growth rate of 3.3%, before averaging a growth of 4.3% in 2025 and 2026," says Hanna. "Output levels are now expected to remain below pre-pandemic levels until 2025 owing to current headwinds.”
