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Future continues to look positive for construction industry

By Knauf Insulation
December 09, 2021

The construction industry is expected to continue to motor through the economic green lights of the next three years but at a more moderate pace than the rapid acceleration of 2021.

Construction will contribute a highly impressive 0.73% to global GDP growth by the end of 2021 — more than any other time since the year 2000 — with construction’s share of the world’s total output expected to reach 11.6% — the highest level since 2009.

According to Euroconstruct, which examines almost 90% of Europe’s market, construction will grow by 5.6% in 2021 and by 3.6% in 2022. Knauf Insulation’s Head of Market & Business Intelligence Davide Maiello says: “Across the 19 European countries surveyed by Euroconstruct, dynamics in the two major segments have been very different, 2021 growth in the residential market will be 7.1% with 3.7% for non-residential.

The rebound has been strong and the pre-pandemic pattern of positive growth has continued as expected — just with the break of 2020. This growth is now expected to continue in a more balanced way in 2022 with the residential market and non-residential market growing at 3.4% and 3.7% followed by annual growth of between 0.6% and 2.1% until 2024.”

Davide Maiello

Confidence and permits are soaring

So, what are the economic drivers of this positive future?

In 2020, new building was put on hold due to COVID-19, but building renovation continued, even if at a slower pace, as people spent more time at home and had the money to invest in retrofits.

“In 2021 there has been a strong comeback in terms of new non-residential which suffered in 2020. Now there is a change in commercial behaviour that is focused more on distribution centres and warehousing, while hospitality and leisure will see new vitality.”

As a result, the number of permits for new non-residential buildings has skyrocketed. Double digit growth is now anticipated across the countries surveyed by Euroconstruct with these investments expected to materialise between 2022 and 2024.

In addition, confidence in the market is back to pre-pandemic levels and the expected rise in interest rates started but slower than anticipated. This means money is still available at favourable rates and investors feel comfortable, particularly due to the expected normalisation of supply and demand in 2022.


Renovation of 35 million buildings by 2030

In 2021 there was imbalance of supply and demand in terms of building materials and many manufacturers were taken by surprise. “Now they have geared up their production side and demand has stabilised and we no longer have the strange seasonality we experienced in 2021,” says Davide.

The imbalance of supply and demand will be slowly normalised in 2022 with another positive trend to come. 2021 has shown a strong increase of materials trade but did not see a rebound in the trade of services but this is expected to change in 2022.

The market is also seeing a transition towards more off-site construction with prefabricated building becoming more popular. Additionally, energy efficiency is increasingly important with initiatives such as the European Commission’s ‘Renovation Wave’ — which aims to renovate 35 million buildings — driving the market.

Renovation plans flourished during the pandemic and show no signs of slowing down particularly as recent soaring energy costs have magnified their importance. Now there is a strong backlog of work coming through that will comfortably occupy the industry for the next few years.

“Put all these ingredients in the economic mixer and you have a good outlook for 2022 to 2024,” says Davide.


Challenges of COVID

Construction in some European countries such as Germany, Denmark, Sweden and Poland did not experience major problems during the pandemic, however those that suffered built back in 2021 what they lost in 2020 and even more. Now, most countries expect a positive picture in 2022.

With hindsight it is now possible to see that the economic pandemic misery of 2020 has been very different to the financial crisis of 2009 when construction was contracting more than GDP and driving the downturn.

In 2020, the opposite occurred. Construction was down -4.7% while GDP was suffering at -6.4% meaning that construction helped pull back a V-shaped recovery and produced that impressive 0.73% contribution to growth.


Naturally, there are challenges on the economic horizon, that may cast a shadow over all that positivity. “The elephant in the room is the new variant of COVID,” says Davide. “This is still a great unknown. How will the world react to this? How will it cope? We are clearly more knowledgeable than we were before and hopefully we will manage situations more effectively to avoid the strict lockdowns of 2020.”


Wage, prices and energy increases

Other shadows whose outlines are becoming clearer by the day, are wage and price increases as well as the cost of energy and increases in logistics, freight and sea costs and the price of CO2 emissions which will inevitably fuel inflation.

Energy costs increases will undeniably hit Europe more than North America and for smaller companies, wage increases will be a challenge as will energy costs for high-energy use manufacturers. However, the general feeling is that construction will modify its approach to be more productive, more energy efficient and sustainable.

“There is a positive mix of factors for the industry over the next three years,” says Davide. “In the past the industry was suffering more and people worried less. Now we are often concerned about how the market is developing, even if the outlook is positive."

My feeling is that we should remain optimistic. Construction has been identified as one of the main pillars to sustain the economy in Europe and more than ever all the lights are green.
Davide Maiello, Knauf Insulation’s Head of Market & Business Intelligence