Mercado Interior, Industria, Emprendimiento y Pymes

European construction sector observatory

European construction sector observatory

The European construction sector observatory (ECSO) is an initiative under COSME. It regularly analyses and carries out comparative assessments on the construction sector in all 27 EU countries and the UK – aiming to keep European policymakers and stakeholders up to date on market conditions and policy developments.

What are ECSO's objectives?

  • to monitor market conditions and trends, as well as national/regional strategies and progress towards the 5 priorities of construction 2020
  • to encourage knowledge sharing and the replication of good practice
  • to raise awareness on policy measures and initiatives impacting the construction value chain

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Country fact sheets

ECSO profiles the construction industry in the 27 EU countries and the UK, and produces detailed country fact sheets (CFS) for each country. Each CFS provides an analysis of key figures, macro-economic indicators, economic drivers, issues and barriers, innovation, the national/regional policy and regulatory framework, and the current status and national strategy to meet construction 2020 objectives.

To view and download ECSO findings, please click on a country on the map below. All EU countries and the UK have data available and are marked in blue.

Austria

In 2018, the Austrian GDP grew by 2.7%, which is slightly above the growth experienced in the previous year (2.6%). This continued growth supported the development of the broad construction sector. In fact, the volume index of production in construction and in the construction of buildings rose by 16.8% and 18.3% respectively between 2015 and 2018. Put in comparison to 2010, these indicators grew by 19.1 and 18.6 index points.

Volume index of production in construction between 2015 and 2018 rose by 16.8 percent

Reflecting the increased volume index of production, the turnover in broad construction sector marked a strong increase between 2010 and 2018 (+30.1%), reaching EUR 92.4 billion, its highest level in this period. Such turnover growth was driven by the increase experienced in all construction sub sectors. In particular, the real estate activities and architectural and engineering activities sub-sectors grew by 39.7% and 37.6% between 2010 and 2018. At the same time, the narrow construction sub-sector accounted for 55.6% of the total turnover of the sector in 2018.

Total turnover in the broad construction amounted to EUR 92.4 billion in 2018 and is projected to increase by 4.8% in 2019.

These improvements are partly explained by the increasing apparent labour productivity across all construction sub sectors. The manufacturing, narrow construction sub sector and real estate activities experienced a double-digit growth between 2010 and 2018 (+19.8%, +15.4% and 16.6%). The gains in apparent labour productivity can be linked to the increasing adoption of technology and digital innovation, such as the use of drones and BIM in construction activities.

Apparent labour productivity in narrow construction sub sector between 2010 and 2018 rose by 15.4 percent

Following the increase of production and turnover, the total number of persons employed in broad construction sector in Austria reached 502,330 in 2018, marking a 16.0% increase since 2010. While the narrow construction sub sector accounted for 63.5% of the number of people employed in the broad construction sector, it is the architectural and engineering activities sub-sector and the real estate activities sub sector which contributed most to the employment growth of the broad construction sector (+26.5% and +20.4% respectively between 2010 and 2018).

While the Austrian broad construction sector faces labour and skills shortage, the government has developed several initiatives aiming to mitigate it. As a result, Austria scores relatively well in the area of vocational education and training (VET) for construction, due to its efforts in modernising the apprenticeship systems. To counter the declining trend in participation rates of VET, some initiatives were launched, offering incentives for both apprentices and companies to support employees’ participation in educational programmes. These increasingly include software and other digital-related trainings.

Housing market is considered to be one of the main drivers of the broad construction sector in Austria.

The demand in the housing market is supported by declining interest rates on mortgage loans; rising households’ income and increasing numbers of households (+8.1% between 2010 and 2018). At the same time, the investments in dwellings increased by 34.7% in the same period, reaching EUR 17.3 billion in 2018. However, the housing supply seems to be lagging behind and push the house price index up (+19.6% between 2015 and 2018).

Investments in dwellings between 2010 and 2018 rose by 34.7 percent

Investment in non-residential construction and civil engineering also grew in 2018 (+10.0% between 2010 and 2018). This was primarily propelled by investments in rail and road infrastructure maintenance. The share of non-residential construction and civil engineering investments remain important, accounting for 58.5% of total investments in the broad construction sector in 2018.

Investments in non-residential construction and civil engineering between 2010 and 2018 rose by 10 percent

The outlook for the Austrian broad construction sector should continue to be positive for the coming years. The issue of shortage of skills is tackled by digitalisation and modernisation efforts of VET programmes. However, increasing attention should be paid to the issue of housing affordability, which may worsen giving the limited financing means made available for social housing and the continuous rise in the housing price index.

Belgium

The Belgian construction sector expanded in 2018, owing to an improving business confidence, increasing domestic demand, high levels of investments and sustained economic growth. The number of enterprises grew at a sustained pace, primarily led by the real estate sub-sector. In parallel, the turnover of the broad construction sector grew by 41.1% between 2010 and 2018.

Turnover growth of the broad construction sector between 2010 and 2018 grew by 41.1 percent

Number of enterprises in the broad construction sector between 2010 and 2018 increased by 33.2 percent

The Belgian housing market is growing. Sustained decline in mortgage interest rates, high employment levels and sustained wage levels supported the demand for housing. This translated in a large increase in residential mortgages, which stood at EUR 246.5 billion in 2018. The latter is more important than the housing supply, as witnessed by the growth of the house price index, which experienced a 9.4% increase over the 2015-2018 period.

However, house price is rising faster than income (4.6% vs. 2.4%). While this contributed to making housing a preferred investment choice, it may also threaten housing affordability, particularly in urban areas of major cities in Belgium.

House price over 2010-2018 grew by 17.5 index points

Outstanding residential loans between 2010 and 2018 grew by 52.4 percent

Consistent increase in housing price index, and high investments in the infrastructure and energy projects, has led to improved optimism among construction companies.

Belgium, being one of the Member States with the highest rail and road densities, has enacted several policies to enhance investment in the infrastructure as well as non-residential real estate.

While this will contribute to the broad construction sector growth, it will also be impeded by the shortage of labour and skills. In fact, the lack of appropriate experience and skills, coupled with uneven reforms in the construction professions, are some of the key challenges weighing down the sector’s growth. Skills gap is one of the main reasons for significantly increased vacancy rates in the real estate and narrow construction sub sectors. This has prompted the sector to invest in training of employees with several initiatives being taken to enhance skills through on-the-job training. At the same time, the number of tertiary students in the areas of manufacturing, processing, architecture, building and construction witnessed robust increase.

The rate of lifelong education in Belgium is increasing, but remains below EU-average rates.

Numerous research centres, clusters, and incubators foster eco-innovation and sustainable construction. Additionally, a substantial increase was noticed in the number of R&D professionals in the narrow construction sub-sector with a specific focus on professional, scientific and technical activities.

The outlook for the Belgian construction sector is positive. Investments in the construction and infrastructure sectors are rising, supported by well performing housing market, easy access to capital and low returns on alternative assets. With some challenges to tackle including skills shortages, the sector is forecasted to grow moderately in the coming years.

Bulgaria

The Bulgarian construction market mostly comprises of SMEs and some large players, totalling 60,171 enterprises in 2018.

The number of companies in the broad construction sector increased by 18.2% as compared to 2010, partly driven by the rise in real estate activates. The total broad construction sector is expected to increase by 4.5% in 2019 and 2.9% in 2020. The total turnover increased by 17.9% compared to 2010, driven by a 51.0%, 48.8% and 9.4% increase in the manufacturing, real estate and narrow construction sub-sectors, respectively.

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Expected construction sector growth between 2019-2021

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The number of workers employed in the broad sector diminished by 3.7% as compared to 2010.

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There are several crucial issues hindering the sustainable development of the Bulgarian construction industry. Firstly, the issue is the late payments and long credit period. Around 58.0% of the Bulgarian businesses face difficulties with long term payment. Secondly, the shortage of skilled and professional workforce in the construction sector continues to be a major concern. Thirdly, the widespread increase in the number of bankruptcies declared by the broad construction sector companies. Fourthly, the business environment continues to remain heavily regulated. The public procurement process remains non-transparent and distorted. Several rounds of authorization schemes for construction companies further make the entire process difficult and inconvenient. This is particularly challenging for SMEs, which reportedly suffer more than large construction companies.

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Investment in innovation and R&D activities is still lacklustre and can be further improved. The number of construction-related patent applications went down to 0 in 2018 as compared to 3 in 2016. The Bulgarian economy also faces major challenges in the innovation front due to lower digital skills of its workforce and insufficient investment in the integration of digital technologies into business. However, the country entered into strategic partnerships with non-EU member countries and initiated various schemes to overcome this situation.

The overall outlook for the broad construction sector is promising, primarily supported by increased investments in public infrastructure backed by EU funding. Notably, the European Structural and Investment Funds (ESIF) will provide Bulgaria with a total of EUR 9.9 billion for 2014-2020. The two largest allocations are for Environment Protection and Resource Efficiency and for Network Infrastructures in Transport and Energy. Thus, the infrastructure market is expected to be the propelling force behind the growth of the construction sector in the coming years.

Bulgaria has also made some progress with regards to developing an anti-money laundering framework to combat corruption. The Bulgarian Institute of Standards also introduced the national strategy for standardisation as well as the established the SME portal as a one-stop-shop for SMEs on standards.

Bulgaria has also implemented the ‘New Technologies to Support Internationalisation’ initiative, aimed at promoting sustainable development and successful integration of SMEs into the European and global economy.

Croatia

Over the 2010-2018 period, the Croatian GDP increased by 8.4%, amounting to HRK 356.8 billion (EUR 47.9 billion) in 2018.

The overall business confidence in Croatian economy has also improved, on account of a strong domestic housing demand amidst falling interest rates and government subsidised loans. The volume index of production of the broad Croatian construction sector overall decreased over the period from 2010 to 2018 (37.8 index points - ip), despite continuing increase in 2015-2018 (+10.6 ip).

Volume index of production in the construction over 2010-2018 period decreased by 37.8 index points

The total turnover of the broad construction sector also increased slightly (+2.0%), mainly driven by growth of the turnover in real estate activities (+76.5%) and manufacturing sub-sectors (+39.1%) over the 2010-2018 period.

Turnover in the broad construction sector over 2010-2018 period grew by 2 percent

Apparent labour productivity increased most in the narrow construction (+41.9%) and manufacturing sub-sectors (+36.9%) between 2010 and 2018. The real estate activities, despite a 9.6% decrease in productivity over 2010-2018, still show the highest apparent labour productivity across sub-sectors, standing at EUR 38,200 in 2018. This overall positive development may help explain why the profitability of the construction sub-sector increased by 5.1% between 2010 and 2017.

Gross operating surplus in the broad construction sector over 2010-2017 period increased by 5.1 percent

Despite the increases in terms of profitability and turnover, the total employment in the broad construction sector declined by 10.7% in 2018, compared to 2010 levels. This was mainly driven by a decrease in the number of employees in the narrow construction sub sector (-17.4%). This deterioration was partially mitigated by the improvements in the manufacturing and real estate activities sub-sectors (+6.2% and +26.2% respectively) between 2010 and 2018.

The demand for housing remained strong over the past few years. This is explained by the increase of households’ income, lower mortgage rates and government subsidised loans. In parallel, foreign demand for housing also increased, especially in popular touristic locations and urban areas.

At the same time, the issuance of building permits for residential construction has declined. This contributed to the rise of the house price index (+13.4 ip between 2015 and 2018, but only +2.2 ip in comparison to 2010 level), and housing supply shortage. In particular, the capital city of Zagreb saw one of the highest increases in the housing price index in recent times.

House price index for existing dwellings over 2015-2018 period grew by 13.4 index points

The development of the Croatian housing market is supported by EU funding. In September 2019, the EIB Group approved a EUR 7.0 billion investment to support Croatia’s new social housing scheme, clean energy, sustainable transport, health and environment.

There are two critical issues hindering the development of the Croatian broad construction sector. The first relates to the issue of late payments. Despite improvements in the average payment time for all payment transactions, the time to complete the payment is often higher than the payment terms originally allowed by the companies. Secondly, the lack of professional and skilled workforce in the construction sector continues to be a major concern. Adult participation in learning and training declined from 3.0% to 2.9% between 2010 and 2018.

To address this situation, Croatia has been modernising and implementing on-going reforms in its vocational education and training (VET) system. The Croatian government is also establishing the Croatian Qualification Framework aiming to improve labour market relevance of education.

Launched in 2018, the programme "Dual Education in VET" has been expanded by 13 VET schools for 2019-2020, thus supporting additional work-based learning opportunities. Additionally, an ESF project “Modernisation of the system of continuous VET teachers’ and trainers’ development” has also been implemented to support training of VET school principals.

The government is also taking steps to strengthen the innovation capacity of the construction sector and streamline business process through tax incentives and reduction of administrative burdens on enterprises (e.g. digitalised land registry). The EU played a key role in supporting such a process, through funds like Horizon 2020, which have assisted companies in implementing innovations.

Overall, the outlook for the broad Croatian construction sector is moderately positive, though it relies on EU and national public support. The upscaling and re / up-skilling of existing workforce to meet the sector requirements will play a crucial role in the improvement of business confidence and investments.

Cyprus

The construction sector in Cyprus has been recovering after a severe economic and financial crisis coupled with a housing crisis.

The number of enterprises in the broad construction sector reached its highest level of 14,320 in 2018, growing by 4.7% between 2010 and 2018.

While, volume index of production in the narrow construction sub sector dropped by 53.2 index points between 2010 and 2015, it has since then increased continuously until 2018, growing by 80.7% between 2015 and 2018. The turnover of the broad construction sector declined over 2010-2017 (-21.6%), despite constant increase since 2014 (+62.4%). Strong growth continued in 2018 with a growth of 19.6%.

Production in the narrow construction sub sector between 2015 and 2018 grew by 80.7 percent

In parallel, the gross operating rate of the broad construction sector, which stood at 19.4% in 2010, declined to 10.6% in 2014, before increasing again and reaching 13.5% in 2017.

Construction SMEs continue to struggle with access to finance in 2018. While Cyprus has taken several initiatives supporting banks, the latter still have to deal with high shares of non-performing loans (NPL) on their balance sheets. As a result, domestic savings and foreign investments still continue to be some of the key sources of financing.

After the collapse of the housing market during the financial crisis, the real estate market is showing signs of recovery. In fact, investments in dwellings having been increased by 25.4 percentage points between 2014 and 2017. This trend continued in 2018 and in 2019, reaching levels beyond 2010’s.

In addition, with rising households’ disposable incomes and declining mortgage rates, the demand for housing has been increasing. This demand is not only domestic but also international. Around 48% of new houses in Cyprus are bought by foreigners, under the residence and citizenship conditions (the so-called Golden visa). This demand was matched with a slower growing supply, fuelling the house price increase. In regards with the housing supply, the number of building permits increased significantly (+94.0% between 2015 and 2018).

Number of building permits between 2015 and 2018 grew by 94 percent

The house price index rose (+4.4% between 2015 and 2018), raising issues around house affordability. This has led to regional differences in house prices, with Limassol, consisting of high concentration of foreign community, recording the highest house prices.

Investments in non-residential construction and civil engineering have seen considerable increase since the rebounding of Cypriot economy. The increasing focus on the tourism sector, has led the government to team up with (foreign) private investors, to invest in various infrastructure projects, including the construction of marinas, hotels, restaurants, golf courses, as well the development of a new casino resort. Overall, the low level of investment in R&I in construction sector suggests that productivity may remain structurally low. This might hamper the competitiveness of the sector in the future. Cyprus ranked last in the EU-28 when it comes to Eco-Innovation. It has, however, done well in terms of investing in new digital technologies, ranking above the EU 28 average. Specifically, in the construction sector, the country has seen high proportion of companies investing in technologies such as 3D printing, drones, augmented and virtual reality and IoT.

The construction sector is expected to continue its growth in the next few years. This is mainly due to an improved economic climate and higher tourism investments. A renewed focus on energy efficiency and infrastructure investments as well as preferences for digital technologies will further support the growth of the broad construction sector.

However, this growth may be threatened by the continued lack of access to finance for construction SMEs and the high reliance on foreign investment in residential, non-residential and civil engineering markets.

Czech Republic

Czech Republic is experiencing an economic growth since 2013, driven by growing domestic consumption and rising household income.

Investments in the Czech broad construction sector increased by 7.5% over the period 2010-2018 (including a raise of 16.0% in 2015-2018). This was driven by a significant increase in investment in dwellings (+50.1%) and slightly mitigated by a decline in investments in the non residential and civil engineering segment ( 10.2%). As a result, production in the broad construction sector increased by 6.4% over 2015-2018 driven by an increase of 15.1% in construction of buildings over the same period. In similar lines, the total turnover in the Czech broad construction sector increased by 11.1% over the period 2010-2018, outperforming the pre-crisis levels.

To offset the declining investments and improve the underdeveloped transport infrastructure, the Czech government put in place the Transport Policy of Czech Republic for 2014–2020 with the Prospect of 2050. It foresees an annual amount of CZK 43 billion (EUR 1.6 billion) in investment to be used both for construction of new transport infrastructure (particularly TEN-T) as well as for maintenance. A total of EUR 24 billion is allocated to the country (1.8% of annual GDP) in the multiannual financial framework. Out of this, EUR 14.6 billion has been allocated to specific network infrastructure projects by 2018 with an additional EUR 1.2 billion allocated to projects on strategic transport networks through Connecting Europe Facility. In addition, EUR 560 million has been allocated to strengthen public administration capacity. The EIB entered into an agreement to provide loan to Czech Ministry of Finance for CZK 3.0 billion (EUR 117.2 million) in April 2019. The funds would be used to revamp two railway sections – Velim-Poříčany and Dětmarovice-Petrovice u Karviné, totalling 25km. In addition, the Czech infrastructure manager SZDC appointed French National Railways for development of a planning framework for high-speed rail lines in Czech Republic.

The housing market is characterised by an increase in demand, fuelled by record-low mortgage rates and rising household incomes. However, even though building permits for residential buildings increased significantly (+27.2% between 2015 and 2018), supply is lagging behind, partly due to slow administrative procedures for obtaining construction permits. As a result, house price index increased at the fastest pace in the EU 28, by 30 index points over the 2015-2018 period. The Czech National Bank has set recommendatory caps for loan-to-value (LTV) ratio to safeguard mortgage lenders against negative equity. The measure requires lenders to provide loans with LTV ratios up to 90%. Moreover, the volume of new loans with ratios of 80% - 90% should not exceed 15% in each quarter.

Czech Republic ranked 21st in the EU transport scoreboard 2019. More specifically, it ranked 8th for efficiency of train services, 16th for efficiency of air transport services, 23rd for the quality of the roads, and 21st for the completion of the TEN-T Road Core Network.

With regard to sustainable construction and energy efficiency, the government also approved the Concept of the Implementation of BIM. This includes a schedule for the phasing-in of BIM over the years 2018-2027, and its enforcement in public procurement contracts by 2022.

There is a positive country outlook for the coming years, with GDP growth forecasted at 2.6% in 2019 and 2.4% in 2020. The Czech residential and non residential construction sectors are expected to grow moderately at an average of 2.5% annually up until 2028. This is mainly due to a strong growth in the non-residential sector driven by large transport infrastructure projects related to roads and railways. In the wake of reduced EU funding after 2020, increased public spending and public-private partnerships to develop social infrastructure will be crucial to unlock the investment potential for the construction sector.

Denmark

The Danish construction sector has been on the revival path since 2010, in line with the overall improvement in the general economy. In 2018, there were 74,810 enterprises in the broad construction sector in Denmark, with the narrow construction sub-sector accounting for 49.6% of the total. The number of firms in the broad construction sector has increased by 18.3% since 2010, with architectural and engineering activities experiencing the greatest growth (+21.9%).

In 2018, in Denmark, the number of enterprises in the broad construction sector amounted 74,810, an increase of 18.3% over 2010.

In addition, profitability of the Danish broad construction sector has picked up since 2010. In fact, over the period 2010-2018, total turnover rose by 67.8% from EUR 44.4 billion to EUR 74.5 billion. More than half (54.5%) of the total turnover was generated by the narrow construction sub-sector, followed by real estate (24.1%), architectural and engineering activities (13.3%) and manufacturing (8.1%).

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In parallel, employment in the sector is currently at its highest level since 2010. In 2018, 338,885 people were employed in the broad construction sector, 31.1% above the 2010 level. The narrow construction sub-sector employed 59.0% of the total construction workforce in 2018, i.e. 35.3% rise since 2010.

However, the broad construction sector faces the shortage of skilled labour. According to the 2018 European Investment Bank (EIB) investment survey, the availability of skilled staff is the main investment barrier for firms in Denmark. In 2018, all sub-sectors reported the lack of skilled staff as the most significant investment barrier. The broad construction sector is particularly affected with 92% of companies reporting difficulties in this area.

To address skills shortages, a number of initiatives have been launched that aim to engage young people in construction-related apprenticeships and vocational training, such as the campaign “Thank you” that promotes companies that employ apprentices.

Despite falling demand due to the introduction of tighter lending standards in 2018, coupled with a slowing economic growth, house prices have been picking up. In 2018, the house price index for total dwellings was 26.6% above the 2010 level in 2018. Specifically, existing dwellings reported the highest increase (+14.9% since 2015).

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Furthermore, to address the issue of household debt and the underlying exposure of banks in this regard, the Danish government introduced tighter lending regulations in January 2018. This limited the banks from offering housing loans that do not have fixed interest rates, or monthly instalments.

The Danish construction sector also faces stiff competition. Many mid-sized players have expanded their business activities beyond their traditional local markets to all over the country, which has led to decrease sales prices . Access to procurement markets is also considered difficult, particularly for small companies, given that the number of regulatory requirements brings up the cost of submitting a tender. In response to these issues, Denmark instituted a new Danish Productivity Board since January 2017, which continues the work of the Productivity Commission on a permanent basis. The independent experts and specialists of the Commission are to analyse the productivity trends and come up with specific recommendations that can enhance productivity in Denmark’s private and public sector in the coming years.

Denmark is a leader in eco-innovation and sustainable construction, with a variety of funding schemes available to support R&D projects related to the development of innovative eco-efficient technologies and to the efficient use of energy in the building stock. Moreover, energy efficient renovation of buildings is supported by the strategy ‘Road to energy-efficient buildings in the Denmark of the future’, as well as subsidies and fiscal measures. However, the current shortage of suitably qualified professionals constitutes a main barrier towards achieving the energy efficiency targets.

Expected broad construction growth between 2019-2021

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The outlook for the construction sector mirrors the positive outlook of the economy, with growth being predicted at 7.5% in 2019 and 7.9% in 2020. However, low productivity still affects the competitiveness of the industry, due to a fragmented value chain and the highly restrictive regulatory environment for construction service providers. The government policy strategy ‘Towards a stronger construction sector in Denmark’ was therefore launched to strengthen productivity and employment in the building sector. In 2018, Danish Government launched the Strategy for Digital Construction to increase the productivity in the sector. The strategy aims to support the greater prioritisation and utilisation of the technological solutions, focusing on increasing the productivity and efficiency of the construction sector.

Estonia

Estonia’s GDP growth remained strong in 2018, increasing by 3.9%, even though it is slightly lower than the 2017 level of 4.9%.

The growth of the Estonian economy was primarily driven by a robust domestic demand and private consumption, which are supported by rising employment and growing wages.

In line with the growth in the economy, the broad construction sector in Estonia has experienced positive results. The volume index of production in the narrow construction sub-sector rose by 49.2% between 2015 and 2018, marking an acceleration of 17.4% over the previous year. Similarly, production in the construction of buildings increased by 18.0%, followed by construction of civil engineering (+16.3%), during the same period.

The increase in production translated in an increase in turnover. Total turnover in the broad construction sector amounted to EUR 10.9 billion in 2018, compared to EUR 4.6 billion in 2010. The narrow construction sub-sector registered the highest share within the sector, accounting for 56.3% of the total turnover in 2018.

Profitability in the sector has also experienced significant increase. This is partly explained by the rising labour productivity and employment prospects in broad construction.

Apparent labour productivity increased by 85.3% in the broad construction between 2010 and 2017. This growth is also reflected in all construction sub-sectors until 2018. For instance, labour productivity in the real estate sub-sector reported an increase of 144.9%, the highest growth among all sub-sectors, followed by the civil engineering sub-sector (+96.1%) and the narrow construction sub-sector (+81.8%) during the period 2010-2018.

The gross operating surplus of the broad construction sector also improved by 211.0% between 2010 and 2017, indicating a rise in the sector profitability.

In parallel, employment in the Estonian broad construction sector recorded a growth of 45.1% for the 2010-2018 period. This was mainly driven by the increase of people employed in the narrow construction sub-sector (+54.0%), followed by the manufacturing sub-sector (+43.0%) and architectural and engineering activities sub-sector (+29.5%) in the same period. At the same time, the number of job vacancies also increased significantly in the same period.

Total investments in broad construction sector increased by 51.8% % between 2010 and 2018. In particular, investments in dwellings increased by 136.8% in the period. In terms of non residential construction, the development has been similar as in the construction of dwellings. Indeed, investment in non-residential construction and civil engineering grew by 25.9% between 2010 and 2018.

Furthermore, house prices have reflected the developments in the overall economy, growing by 15.0% between 2015 and 2018. Due to the rise in demand, the supply of new residential real estate has grown, contributing to containing the upward pressure on house prices.

The civil engineering segment is expected to benefit from investments in transport infrastructure, which are needed to implement the vision of the ‘National Spatial Plan Estonia 2030+’. However, Estonia’s transport investment is heavily reliant on the EU funds, with a planned allocation of EUR 524.8 million of EU funding dedicated to transport over the 2014-2020 programming period. The Rail Baltica project, worth EUR 1.3 billion, plays a strategic role to connect Estonia with Central and Western Europe through a high-speed rail connection. In November 2019, Estonia started the construction under Rail Baltica project. The first structure will be the Saustinõmme viaduct, which will cross the Rail Baltica main line.

Despite favourable economic and investment environments, the Estonian construction sector’s development is experiencing difficulties. Labour and skills shortages are limiting the production and putting a strain on profit margins, as wages are increasing. Moreover, bottleneck vacancies in construction persist, representing a barrier to the sector’s growth. Estonia relies on foreign labour to close the gaps, while in parallel making efforts to reform its educational system, in particular vocational education training (VET).

Overall, the outlook for the broad Estonian construction sector is positive, mainly driven by non-residential and infrastructure investment i.e. in transport. However, these investments rely on EU funding and public financing. Addressing structural challenges of the sector linked to labour and skill shortages will help in ensure the continuous growth on the long term.

Finland

Finland experienced a GDP growth cumulating up to EUR 202.4 billion in 2018 (2010 prices). This is a 2.3% increase in comparison to 2017.

This GDP growth is expected to slow down in 2019 and 2020 (+1.6% and 1.2% respectively). In line with GDP growth, the volume index of production in all construction sub-sectors increased between 2015 and 2018 except the civil engineering, which declined by 2.0%. Conversely, the volume index of production in the broad construction and in the construction of buildings sectors recorded a 13.6 and 16.0 index points increase of respectively, in the same period.

Expected GBP growth between 2019-2021

This increase in production translated in an increase in turnover. In 2018, the total turnover of the broad construction sector amounted to EUR 65.0 billion, a 53.0% increase compared to 2010.

Also, apparent labour productivity in the Finnish broad construction sector increased from EUR 59,164 in 2010 to EUR 67,335 in 2016 (+13.8%), being well above the EU-28 average of EUR 52,090. This growth is also reflected in all construction sub-sectors.

Labour productivity in the broad construction sector in Finland

The issue of labour and skills shortages are prominent and may threaten the good development of the construction sector.

Fostering innovation and the digitalisation of the construction sector could support the productivity growth and mitigate the skill shortages in Finland. In this regard, Finland is recognised as a leader in eco-innovation, ranking fourth in the 2018 Eco-innovation index, behind Luxembourg, Germany and Sweden, and well above the EU-28 average.

The housing market in Finland experienced a 6.5% increase in the number of households in 2010-2018 reaching 2.7 million in 2018. This was fuelled by continuously declining mortgage interest rates since 2011, that reached an historic low of 1.0% in 2018. Low interest rates and strong consumer confidence in the construction sector have boosted the demand for household loans. Indeed, in 2018, the total volume of credit issued by domestic banks to the real-estate and construction sectors stood at EUR 48.5 billion. In April 2019, housing corporations had EUR 32.8 billion of loans and EUR 4.9 billion of undrawn credit facilities.

Furthermore, in 2018, all sub-sectors, ranging from narrow construction to dwellings and non-residential construction and civil engineering benefited from the investment growth. Total investment in the broad construction sector increased by 14.3% between 2010 and 2018. In particular, investment in dwellings increased by 14.8% over 2010-2018. Whereas, investment in non-residential construction and civil engineering grew by 13.7% over the same period.

In terms of international competitiveness, Finland is ranked among the top EU performers when it comes to border agency cooperation and involvement of the trade community. To further improve its position, several reforms have been introduced. In November 2016, the government reorganised Team Finland’s services and operating models to improve the effectiveness of services. Team Finland’s operations were reorganised in two stages. And, in the beginning of 2018, Tekes and Finpro were merged to create Business Finland.

Furthermore, low interest rates and strong consumer confidence in the construction sector have boosted the demand for household loans. Indeed, in 2018, the total volume of credit issued by domestic banks to the real-estate and construction sectors stood at EUR 48.5 billion. In April 2019, housing corporations had EUR 32.8 billion of loans and EUR 4.9 billion of undrawn credit facilities.

In conclusion, the Finnish construction market has grown significantly in recent years. While it is expected continue increasing in 2019 and 2020, this growth will be slower than in 2017-2018. Major challenges such as labour and skills shortages should be addressed for the construction to reach its full potential.

France

Over the 2010-2018 period, the French GDP increased by 10.7%, amounting to EUR 2,312.0 billion in 2018.

The overall business confidence in French economy has also improved driven by stable domestic housing demand amidst falling interest rates and government tax incentives.

The volume index of production in the narrow construction sector increased marginally, by 2.3% over the 2015-2018 period. The production in building construction increased slightly by 1.1%, while civil engineering construction experienced a higher growth of 6.1% over the same period.

Similarly, the total turnover in the broad construction sector increased moderately by 9.9% from EUR 419.9 billion in 2010 to EUR 461.6 billion in 2018. This growth was primarily driven by an increase in turnover in the narrow construction (+15.5%) and manufacturing (+11.5%) sub-sectors over the 2010-2018 period.

During the 2010-2017 period, the apparent labour productivity of the broad construction sector also increased by 10.5%. This growth is reflected in all the construction sub-sectors between 2010 and 2018, particularly in the manufacturing sub-sector (+19.9%), followed by narrow construction sub-sector (+14.6%) for the same period. This increase in labour productivity also supported the marginal increase in profitability of the broad construction sector. Indeed, the gross operating surplus of the broad construction sector also slightly by 1.1% for the 2010-2018 period. However, for companies operating in the residential sector, profitability has been rather stagnating, even though the production volume and turnover have kept on increasing. This is evident from the fact that the total gross operating rate of the broad construction sector declined by 6.2% between 2010 and 2017 .

The total employment in the broad construction sector declined by 2.2% in 2018 compared to the 2010 levels. This was mainly driven by a decrease of 4.3% and 7.0% in number of employees in the narrow construction and manufacturing sub-sectors, respectively for the same time period. This deterioration was partially offset by positive improvements of 4.7% in the real estate activities and 6.5% in architectural and engineering activities sub-sectors.

Since 2015, housing prices have started picking up for existing and new dwelling, reflecting a housing demand increasing faster than the supply. In fact, the issuance of building permits for residential buildings has declined by 4.1% in 2018 compared to 2010. In addition to domestic demand, foreign demand is also contributing to the housing supply shortage, especially in popular tourist locations such as Paris.

In accordance with the Construction Revival Plan, several schemes promoting home-ownership have been introduced (such as the Zero-interest Loan, Social Access loan) and were recently amended to promote to the acquisition of new housing, especially by young people. In September 2017, the new government presented its Investment Plan (Grand Plan d’Investissement) over the following five years. Of the EUR 57.1 billion investment planned, EUR 20.0 billion will be dedicated to the construction sector.

Despite the above favourable developments, the French economy is expected to slow down, which may impact the development of the construction sector. In addition, some key issues, such as labour and skills shortage and the relatively low profitability of the sector, will need to be addressed to ensure the sustainable development of the sector.

Overall, the growth of the broad construction sector is expected to further slowdown in the coming years, due to a weakening economic environment. The sector may even contract post 2021, especially if some of its structural issues are not addressed.

Germany

Despite a challenging external environment, the German economy maintained a solid growth over 2015-2018, driven by a strong domestic demand.

Mirroring this trend, the construction sector also exhibited positive development. The volume index of production of the narrow construction sector registered an overall growth of 9.3% over 2015 2018, a 16.5 index points increase from 2010. In particular the volume index of production in construction of civil engineering sub-sector recorded a 13.1% increase between 2015 and 2018.

Volume index of production in the narrow construction sector between 2015 and 2018 grew by 9.3 percent

As a result, the broad construction sector experienced an increase in total turnover, reaching EUR 575.6 billion in 2018 (+52.5% compared to the 2010 levels). This was mainly driven by the narrow construction sub-sector, which turnover accounted for 49.4% of the total turnover, and increased by 66.4% over the same period. In terms of profitability, however, developments have been less favourable. The broad construction sector’s profit margin on sales only rose by 0.5 percentage point between 2010 and 2017. This may be partly explained by the parallel rise of construction costs and especially the labour costs (+7.9% and 10.4% respectively between 2015 and 2018).

In parallel, employment in the broad construction sector in Germany increased considerably since 2010, growing from 2,938,001 to 3,973,029 in 2018 (+35.2%).

Turnover in the broad construction sector between 2010 and 2018 grew by 52.5 percent

Employment in the broad construction sector between 2010 and 2018 grew by 35.2 percent

The housing market continues to be fuelled by strong demand, owing to rising incomes, low interest rates as well as high level of net migration. In parallel, supply has not kept up with demand for a prolonged period. The combination of the above factors contributed to a continued increase in property prices, in particular in big cities. The house price index recorded a 21.7% increase between 2015 and 2018, a 37.8 index point increase between 2010 and 2018.

House prices index between 2015 and 2018 grew by 21.7 percent

Rising prices have made it more difficult for low and middle income households to afford adequate housing. The rising price has led the German Central Bank to raise concerns about a potential overheating of the German housing market. According to Bundesbank, real estate overvaluations in German towns and cities ranged between 15% and 30% in 2018.

Total investments in the broad construction sector increased by 7.2% over between 2015 and 2018, a 14.7 index point increase between 2010 and 2018. This increase was driven by the housing market, as reflected by the investments in dwellings, which rose by 8.7% between 2015 and 2018. Investments in non-residential constructions also increased, albeit at a slower pace, by 4.9% between 2015 and 2018. Following a long period of low public investments in infrastructures, the federal government took several measures to unlock investments at federal, regional and municipal levels. This includes the announcements of EUR 86 billion investments in the national rail infrastructure, as part of a total funding of EUR 269.6 billion for the 2030 Federal Transport Infrastructure Plan. This will support the infrastructure activities in Germany, which in turn will boost the construction sector growth.

Investments in the broad construction sector between 2015 and 2018 rose by 7.2 percent

Despite government’s efforts and favourable economic conditions, the construction sector still faces some challenges. A rising number of companies is encountering difficulties in filling up vacant positions. This issue, related to skills and labour shortage, will be partly addressed by the Skilled Labour Immigration Act, which will take effect on March 1, 2020. This in turn will facilitate non-EU immigration, as a way to cope with labour shortage.

Overall, the outlook for the German construction sector is strong, driven by a dynamic housing market, improved infrastructure spending and positive developments for all market segments.

Greece

The Greek construction market is mostly composed of SMEs, totalling 168,233 enterprises in 2018.

After being severely affected by the economic crisis, the Greek construction sector started showing signs of recovery. However, it is still far from recovering from its pre-crisis level. The number of firms in the broad construction sector decreased by 6.9% between 2010 and 2018, following the decline in the manufacturing and narrow construction sub sectors. Over the same period, the production of construction of civil engineering dropped by 9.6%.

The total turnover of the broad construction sector declined by 29.9% between 2010 and 2016, driven by a 38.1%, 37.4% and 32.9% decrease in the architectural and engineering activities, manufacturing and narrow construction sub-sectors, respectively. However, it is expected to annually increase by 3.5% in 2019 and 3.6% in 2020.

There are three critical issues hindering the sustainable development of the Greek construction sector. The first regards the issue of late payments and long credit period. With an average delay of 115 days, payment delays by Greek public administrations to SMEs were amongst the longest in the EU 28 in 2019. Secondly, the shortage of skilled and labour workforce in the broad construction sector continues to be a major concern. Low levels of training participation and high levels of skills mismatch further affect the issue of skills shortage. Thirdly, the broad construction sector suffers from low innovation levels. This is evidenced by the absence of Greek construction-related firms within the top 1,000 EU companies by R&D (industrial sector ICB-3D). The investments in research activities are also limited. From 2010 to 2018, Greece has filed an average of 6.3 construction-related patent applications per year. This has been decreasing, with patent applications amounting to 11 (in 2010) down to 9 (in 2018). The lack of digital skills among the broad construction sector workforce further creates hindrance in the integration of digital technologies into businesses.

In addition, investment in the broad construction sector fell between 2010 and 2018. Investment in dwellings by the whole economy dropped by 87.7% from 2010 to 2018, highlighting the collapse of the residential market. Investment in non-residential construction and civil engineering fared comparatively better, decreasing by 17.7% from 2010 to 2018.

Backed by EU funding and privatisation schemes, investments in infrastructures are projected to increase over the coming years, with a total of EUR 25.0 billion to be invested until 2025. 15% of these projects pipeline is expected to be delivered by the end of 2019. With the end of the EU bailout and the positive GDP growth prospects (+2.2% in 2019 and 2020), confidence in the country’s economy is expected to slowly recover over the coming years.

The government is taking steps to strengthen the innovation capacity of the construction sector through i) the implementation of tax exemption schemes; ii) the establishment of a National Strategy for Smart Specialisation; and iii) the implementation of few large-scale programmes aiming to foster eco-innovation and sustainable construction. However, the use of Building Information Modelling is limited in Greece.

The outlook for the construction industry is hence positive but is heavily dependent on EU and national public sector investments projects. Timely completion of existing projects pipeline is also crucial for the improvement of business confidence.

Hungary

Over the 2010-2018 period, the Hungary’s GDP increased by 24.0%, amounting to HUF 38,976.5 billion (EUR 115.8 billion) in 2018.

The overall business confidence in the Hungarian economy has also improved, on account of increased public infrastructure investment, rising household disposable income, favourable external demand and government schemes, followed by lower interest rates.

The volume index of production in the narrow construction sub sector increased by 27.5% over the 2015-2018 period. This was accompanied by strong performance in the volume index of production of construction of buildings (+40.2%) and civil engineering (+17.8%) over the same period.

Production volume index in the construction of buildings between 2015 and 2018 rose by 40.2 percent

Similarly, the total turnover of the broad construction sector increased by 46.8%, mainly driven by growth in the narrow construction (60.1%), architectural and engineering activities (+48.7%) and manufacturing (+48.3%) sub-sectors over the 2010-2018 period.

Turnover in the broad construction sector between 2010 and 2018 increased by 46.8 percent

At the same time, the apparent labour productivity of the broad construction sector increased by 36.6% between 2010 and 2017. This increase was mirrored in all the construction sub-sectors between 2010 and 2018, particularly the narrow construction sub-sector (+101.2%), followed by the manufacturing (+38.9%) and architectural and engineering activities sub-sectors (+36.7%).

Similarly, the gross operating surplus of the broad construction sector increased by 57.3% over the 2010 2017 period, driven by significant rise in narrow construction (+92.0%), architectural and engineering activities (+86.4%) and manufacturing sub-sectors (+58.3%). In fact, the total gross operating rate of the broad construction sector also rose by 3.6 percentage points between 2010 and 2017.

Total gross operating surplus in the broad construction sector between 2010 and 2017 increased by 57.3 percent

As a result of some of these developments, the total employment in the broad construction sector surged by 9.4% over 2010-2018, primarily driven by increases in the number of employees in the architectural and engineering activities (+21.1%) and narrow construction (+9.7%) sub-sectors.

Housing prices have started picking up rapidly for existing and new dwelling, reflecting a strong domestic housing demand with rising disposable income. This price increase was to some extent mitigated by the increase of housing supply. In fact, the issuance of residential building permits has increased by 85.6% since 2010, reaching 13,743 in 2018. In contrast, the number of non-residential building permits issued has declined by 14.8% from 5,101 in 2010 to 4,346 in 2018.

House price index for total dwellings between 2015 and 2018 increased by 53.3 percent

Number of buildings permits for residential buildings

Number of buildings permits for residential buildings increased by 85.6 percent between 2010 and 2018

The Hungarian government foresees considerable public investments in infrastructure, particularly in transport. In April 2019, the government declared its plans to invest EUR 11.0 billion in road network over the next five years, primarily focusing on the expansion of the motorway network. Apart from EU funding, Hungary's inclusion on China's Belt and Road Initiative has also played an important role in the expansion and development of its transport infrastructure.

The Hungarian government has already announced its plan to invest HUF 790.0 billion (EUR 2.3 billion) for mainline and urban rail projects under the Integrated Programme for Transport (IKOP).

However, single-bidding and corruption are still serious concerns to be dealt with. Moreover, skill shortages and job-skill mismatch continue to plague the broad construction sector. The government’s decision to revamp the national Vocational Education Training (VET) system towards a simplified dual-education model is expected to rectify the present situation soon.

Overall, the prospects for the Hungarian construction sector are positive, spurred by residential construction, transport and energy infrastructure. Nonetheless, improved EU funds absorption, greater procurement transparency and improved job-skill match are some of the challenges that may hinder its medium to long term growth.

Ireland

The Irish economy has recorded a solid growth in 2018, with the GDP rising annually by 7.5%. This is driven by enhanced employment, private consumption, alongside strong investment in construction. Although forecasts for the sector, as well as for the general economy, remain rather positive, uncertainty persists, linked notably to the outcome of the Brexit negotiations.

The construction sector has become the fastest growing economic activity in Ireland over the past three years. The number of enterprises in the broad construction sector in Ireland reached 95,781 in 2018, 29.6% above the 2010 level. The volume index of production of the narrow construction sub sector increased by 52.5 index points between 2010 and 2018, marking a 47.2% increase from the 2015 levels. As a result, the turnover of the broad construction sector in Ireland amounted to EUR 41.9 billion in 2018, a 54.8% increase, compared to 2010.

In the aftermath of the crisis, investments in the broad construction sector experienced a 44.3% increase between 2015 and 2018, a 54.5 index point increase between 2010 and 2018. Investments in dwellings experienced an increase of 83.8% between 2015 and 2018, a 36.5 index point increase between 2010 and 2018. Investment in non-residential construction and civil engineering, on the other hand, increased more slowly, by 30.0% over the 2015 2018 period. In 2018 , the broad construction sector was estimated to employ 237,548 persons, a 52.2% increase compared to 2010, thus showing a strong recovery from the low levels recorded in 2012 (i.e. 139,555).

The Irish housing market experienced one of the longest and strongest lasting house price increase in the EU 28 . The onset of the crisis led to a housing market crash, with the house price index dropping by 53.0% between 2007 and 2012. It has since then recovered, growing by 31.4% between 2015 and 2018.

According to Central Statistics Office (CSO), new dwelling completions experienced a Year on Year (YoY) increase of 22.0% in third quarter of 2019, compared to the previous year, reaching 5,667 dwellings. The increase was specifically driven by a 81.1% increase in the number of apartment completions during the same period . However, it should be noted that this is coming off a very low base.

Even with this increase in housing supply, there is still a long way to go to satisfy the housing demand. For instance, in terms of social housing, the supply stood at 10,000 homes for a demand amounting to 72,000 in 2019 . To tackle the housing shortage, the government launched the Rebuilding Ireland Action Plan, aiming to deliver 47,000 new social homes by the end of 2021. This would amount to an average of 25,000 new dwellings per year. Moreover, the National Asset Management Agency (NAMA) plans to fund the delivery of up to 20,000 new units until 2020.

The need for continued provision of housing will increase in the future, to cater for the estimated 1 million people projected to be living in the country by the year 2040 as forecasted by the National Development Plan Project Ireland.

Despite the strong recovery of the construction sector, the civil engineering segment has not developed at the same pace as other construction activities, partly due to previous fiscal austerity measures. In fact, the Construction Industry Federation of Ireland (CIF) indicate that, in 2018, the commercial and civil construction sector increased by half the rate of the housing sector. However, prospects remain positive with the introduction of the new Project Ireland 2040. The latter plans a total investment of EUR 116 billion for public infrastructure and capital works between 2018 and 2027.

The Irish construction sector suffers from a shortage of skilled labour, requiring an additional 112,000 workers by 2020. This will be a key challenge to address, to ensure the growth of the construction sector. Initiatives including the National Skills Strategy 2025 and Action Plan for Jobs aim at improving and expanding workers’ skills, including digital skills.

The revival of the Irish construction sector, underway since 2013, is expected to continue over the coming years. This will be driven by increasing residential and infrastructural investments planned over the next ten years. Upskilling of the Irish workforce is of paramount importance for the sector to remain competitive.

Italy

The Italian construction sector’s gross value added (GVA) accounted for 16.7% of Italy’s 2018 GDP, making it one of the most important sectors in the national economy.

By 2018, the Italian construction sector experienced a steep decline compared with 2010, reflected by the decrease of its total added value and turnover value. Italy saw a 7.2% drop in the number of construction companies between 2010 and 2018, and a 16.2% decline in terms of the sector’s turnover. Similarly, the production and the number of workers reduced by 30.9% and 21.1%, respectively.

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There are several crucial issues hindering the sustainable development of the Italian construction industry. Firstly, access to finance has been excessively limited, with outstanding loans to the construction sector declining by 46.0% between 2010 and 2018 (from EUR 170.6 billion to EUR 92.1 billion). New loans to construction businesses, including both residential and non-residential, also decreased by 42.4% between 2010 and 2017. Secondly, late payment continues to be a prominent issue for the sector, raising questions about the liquidity the sector. Almost 70% of companies reported delays in payment from Public Administrations in 2017, with an average waiting period of 156 days before being paid. Moreover, the Italian construction sector has one of the worst payment practices in the general economy, with only 2.8% of total payments being settled by due date in 2018. Thirdly, despite a moderate increase in labour productivity in recent years, productivity levels are still far below the EU-28 average. Challenging business environment, inefficiencies in public administration and fragile institutional structures are the factors impeding potential improvements in labour productivity. However, some initiatives aiming to foster the digitalisation of the sector (through e.g. BIM) may help the Italian sector produce more efficiently.

Over the period 2010-2017, the residential building permits dropped by 58.4%. The house price index declined by 16.5% during 2010-2018. Since 2014, the housing market has shown signs of recovery spurred by low interest rates and improved households mortgage lending. The Budget Law 2017 introduced important measures to stimulate public and private infrastructural investment including seismic safety measures (up to 85% deduction) and energy efficiency. The Budget Law 2019 further provided additional resources to achieve the agreed upon targets. It also contributed towards the refinancing of Development and Cohesion Fund while establishing two new funds to revive public investments and community policies implementation.

Additionally, the Investment and Infrastructure Development also has a target budget of EUR 47 billion for the period 2017-2032. Further, support from EU funding is also crucial, with EUR 3.4 billion from the European Regional Development Fund (ERDF) allocated for network infrastructures in transport and energy alone during 2014 -2020.

Rising investments in R&D is one of the prominent factors contributing towards the growth in innovation and sustainable construction among Italian companies.

Italy’s innovative strengths lie in international scientific co-publications, and SMEs innovating in-house. In addition, the use of BIM technologies is growing in the sector and will become mandatory for all projects by 2022. The market for energy efficient renovation is also thriving on account of the Renovation Bonus and Eco Bonus, offering tax deductions of up to 65% on eligible renovation interventions. Italian construction companies are also known to be globally competitive.

A modest recovery in the construction sector is expected in 2020, mainly led by rising private consumption, lower energy prices, investment in infrastructure including through EU funds. However, existing systemic bottlenecks such as employment decline in the sector, late payment by public administrations and inefficiencies in public procurement practices may discourage private investment in the future.

Latvia

The Latvian GDP grew by 4.8% during 2018, the highest GDP growth rate since 2010. The growth was driven by consumer spending and strong investment levels supported by EU fund inflows. The construction sector has generally been recovering since 2010, although it experienced additional contractions in 2015 and 2016.

The volume index of production in the broad construction sector increased by 20.6% between 2015 and 2018 after witnessing a major year-on-year (YoY) decline of 16.6% in 2016. Following the increase in production, the turnover of the sector amounted to EUR 9.1 billion in 2018 , 92.9% above the bottom low of 2010. As a result, employment and the number of enterprises in the broad construction sector increased by 51.8% and 67.8% respectively between 2010 and 2018.

The housing market has been on the revival path since 2010, supported by declining mortgage rates (from 3.7% in 2010 to 2.2% in 2018) and greater household purchasing power. This is also reflected by the house price index for total dwellings, which increased by 29.3% between 2015 and 2018, equating to 49.0 index points increase from 2010. This trend is partly driven by the house price index for new existing dwellings, which rose by 30.2% over the 2010-2018 period. In 2018, 1,925 building permits were issued for the construction of new one-dwelling buildings and 1,273 permits for construction, capital repairs reconstruction and restoration of existing one-dwelling houses . The demand for housing has been boosted by introduction of the Housing Guarantee Programme, providing guarantees on mortgages to support the purchase and/or construction and renovation of the first home. The programme also enables families and young professionals get a mortgage against lower down payment than banks would normally require.

Investment priorities for the development and modernisation of Latvia’s transport infrastructure, particularly roads and railways, are defined in the Latvian National Development Plan 2014-2020, the Transport Development Guidelines 2014-2020 and the National Roads Programme 2014-2020.

While the quality of transport infrastructure in Latvia has improved significantly, the quality of road infrastructure remains well below EU-28 average. Accordingly, Latvia’s 2019 budgetary plan dedicated a total of EUR 236.1 million towards road construction and maintenance. Currently Latvia also lags behind in the completion of the major Rail Baltica project and that of the conventional TEN-T rail core network, leading to an extension of the deadline of completion of the project to 2026. Additionally, the agencies estimate an additional investment of around EUR 1.67 billion for completion of the project in Latvia.

In terms of workforce, the Latvian construction sector is facing a shortage of skilled workers, especially construction managers, water and wastewater engineers and roofers. Additionally, persisting corruption risks in the Latvian construction sector act as a barrier to its development. Last, delays in the absorption of EU funds and the deferral and concentration of large infrastructure projects over 2018-2020 may increase risks of a construction “bubble”. This may in turn lead to price increases and affect quality of the construction works.

The outlook for Latvian construction sector is positive in the short to medium term, driven by EU fund inflows and domestic consumption. However, the sector faces challenges in terms of availability of skilled workforce and lack of effective implementation of various projects. The country’s over-reliance on EU funds, informal employment, and lack of access to finance continue to act as a deterrent for potential new investors.

Lithuania

Over the 2010-2018 period, the Lithuanian GDP increased by 32.7%, amounting to EUR 37.2 billion in 2018.

In line with the overall economic growth, the business confidence of Lithuanian construction sector has improved in 2010-2018. This improvement was driven by strong domestic housing demand, rising house prices, falling interest rates and government-backed development initiatives.

The overall production in the Lithuanian broad construction sector increased by 12.6% over the 2015-2018 period, mainly driven by the growth in the housing market. In fact, the production of the construction of buildings grew by 13.2% over the same period, while the production in the civil engineering segment experienced a slightly lower growth of 11.7%.

Similarly, the number of people employed in the broad construction sector increased by 58.0% between 2010 and 2018, with real estate activities sub-sector recording the largest increase of 64.4%, followed by narrow construction (+64.2%), manufacturing (+40.4%) and architectural and engineering sub-sectors (+34.0%).

The total turnover of the broad construction sector increased significantly over the 2010-2018 period (+121.9%), with the narrow construction, manufacturing and real estate activities sub-sectors growing by 132.3%, 132.0% and 95.6% respectively.

The increased production and turnover were achieved, among other, due to the increased productivity. During 2010-2017, the apparent labour productivity of the broad construction sector increased by 67.0%, with the manufacturing sub-sector demonstrating the largest development. The gross operating surplus of the broad construction sector also improved significantly over 2010-2017 from EUR 482 million to EUR 1.2 billion, indicating a rise in the sector’s profitability.

The increase in house prices is expected to continue in 2020, supported by rising disposable income and lower mortgage rates.

Despite diminished growth in housing investment, there has been a consistent growth in house prices, especially in major cities including Vilnius, Kaunas and Klaipeda.

With social housing options being limited, affordable housing has become a key issue for housing policy. To address it, the government has introduced the Municipal Social Housing Development Action Plan 2015-2020 to support the construction and renovation of social housing units. Additionally, the Law on Housing Acquisition or Lease Support (2018) allows municipalities to sublet housing to people with low income.

Despite the decline over the 2010-2017 period, Lithuania is expected to receive a boost in infrastructure investment, especially in the transport and energy sectors with dedicated funding from the EU.

While the flow of EU structural funds remained stable, it is expected to increase in 2020, providing potential fresh opportunities for the construction sector. The EIB and the European Commission will emerge as the key players and tools for financing Lithuania’s infrastructures. This is particularly significant regarding transport and energy infrastructures, with EU supporting the expansion of rail networks (e.g. Rail Baltica project) together with modernization of airports (in Vilnius, Kaunas and Klaipeda), development of trade corridors and electricity market by connecting Lithuania’s grid with the EU network.
Lastly, the construction sector still faces challenges in the form of skills mismatch and labour shortages. Participation in adult learning has declined along with a similar decrease in the number of tertiary students in engineering, manufacturing and construction. Lack of professional trained workforce and rise in work-related immigration are also some of the issues hindering the growth of Lithuanian construction sector.

Overall, the outlook for the broad Lithuanian construction sector is positive, particularly for the residential, non-residential and the infrastructure construction. However, the infrastructure investment is dependent on EU funding and other public sector initiatives. Timely completion of existing projects along with effective tackling of challenges of labour shortages will help in realising the full potential of the construction sector.

Luxembourg

The GDP of Luxembourg increased by 2.6% in 2018 compared to 2017, primarily driven by strong domestic consumption.

In line with the country’s overall economic growth, the broad construction sector in Luxembourg has experienced positive results. Specifically, the number of enterprises in the broad construction sector increased by 20.8% between 2010 and 2018. This increase was mainly driven by the growth of the number companies in the narrow construction 26.9%), architectural and engineering activities (18.5%) followed by real estate activities (15.5%) sub-sectors. In parallel, the volume index of production in the narrow construction sub sector also increased by 8.5% between 2015 and 2018.

Production in the narrow construction sub sector between 2015 and 2018 grew by 8.5 percent

The increase in production translated in an increase in turnover. Total turnover in the broad construction sector increased by 46.1%, going from EUR 7.7 billion in 2010 to EUR 11.2 billion in 2018. The narrow construction sub-sector registered the highest share within the sector, accounting for 73.8% of the total turnover in 2018.

Total turnover of the broad construction between 2010 and 2018 grew by 46.1 percent

During the 2010-2018 period, the apparent labour productivity of the broad construction sector fluctuated. However, it increased in the narrow construction, manufacturing and architectural and engineering sub-sectors by 24.4%, 8.4% and 12.4% respectively. The gross operating surplus of the broad construction sector also improved by 36.4% in the period 2010-2016, indicating a rise in the sector profitability.

Profitability in the broad construction sector in Luxembourg

Profitability in the broad construction sector in Luxembourg between 2010 and 2016 grew by 36.4 percent

In parallel, employment in the Luxembourgish broad construction sector recorded a significant growth of 23.7% for the 2010-2018 period. During this period, the narrow construction sub-sector experienced the highest increase in terms of people employed (+25.1%), followed by the architectural and engineering activities sub-sector (+24.0%). Despite the growing employment, the number of vacancies in the narrow construction sub-sector increased substantially between 2010 and 2018 (+248.3%).

Number of job vacancies in narrow construction sub-sector between 2010 and 2018 increased by 248.3 percent

The total investment in the broad construction sector grew by 25.0% in 2018 compared to 2010. In particular, investment in dwellings by the whole economy increased by a greater extent in the same period (+50.3%). This is mainly driven by rising investments in public infrastructure projects and non-residential buildings.

Total investment in the broad construction sector between 2010 and 2018 grew by 25 percent

The housing market witnessed a significant increase in terms of the demand, fuelled by record-low mortgage rates and rising household incomes. In May 2018, Luxembourg also initiated adoption of urban planning laws whereby it increased the housing dedicated areas by 13.0%. The country also plans to raise this share for social housing from 10% to 30%. However, despite a considerable increase in building permits for residential dwellings (+37.3%) between 2015 and 2018, supply is still lagging behind.

Building permits for residential dwellings between 2015 and 2018 grew by 37.3 percent

According to STATEC (the national institute of statistics) forecasts, Luxembourg needs to build an additional 5,600 to 7,500 housing units every year until 2060 to keep up with the increasing demand for households. Furthermore, rented housing in the country is mostly concentrated around Luxembourg City and it is becoming increasingly expensive, mainly for lower income households.

To alleviate the housing cost burden, the government, in 2018, extended the “rent subsidy” which was introduced in 2016.

House prices have also increased steadily, going up by 19.9% between 2015 and 2018 (21.0% for existing dwelling and 17.7% for new dwellings). To foster construction and improve housing affordability, the government is taking several initiatives, including subsidies to invest in social infrastructure for local governments with a predicted population growth of over 1% per year (or 15% over a 10-year period). In the context of innovation, Luxembourg has a strong innovation profile and boasts a number of construction-related clusters and initiatives, such as the Resource Centre for Technologies and Innovation in Construction and NEOBUILD dedicated to research and development in sustainable construction. In addition, the Luxembourg Institute of Science and Technology (LIST) is active in the promotion of Building Information Modelling (BIM).

Despite the government’s measures and favourable economic conditions, the Luxembourgish construction sector growth is still limited due to shortage of professional and skilled labour. A rising number of companies have encountered difficulties in filling up vacant positions. The persisting skills shortage is being addressed through several new initiatives, notably LuxBuild2020 II.

Overall, the outlook for the broad construction sector is positive, driven by a booming housing market and positive developments for all market segments.

Malta

The overall Gross Domestic Product (GDP) of Malta amounted to EUR 10.4 billion in 2018, marking a 57.0% increase since 2010.

The broad construction sector is amongst the main drivers of the Maltese economy in terms of GDP, totalling 7,167 enterprises in 2018, 6.8% above the 2010 levels.

In line with GDP growth, the volume index of production of the narrow construction sub sector also increased by 26.7% for the period 2015 to 2018. As a result, the turnover of the broad construction sector also increased, reaching EUR 2.0 billion in 2018, thus marking an increase by 76.5% from 2010.

Turnover of the broad construction sector between 2010 and 2018 grew by 76.5 percent

Additionally, the construction cost index rose by 5.1% between 2015 and 2018, mainly due to an increase in labour costs by 5.4% and increase in input prices for materials by 5.0%. However, this did not have a strong impact on the profitability. The gross operating rate of the narrow construction and architectural and engineering activities increased between 2010 and 2017 by 3.0 and 0.4 percentage points.

In turn, the number of people employed in the broad construction sector increased by 21.5% between 2010 and 2018. Although the number of people employed in the narrow construction sub sector grew by 11.0% between 2010 and 2018 (which is less than other broad construction sub sectors), it accounted for 70.9% of the number of people employed in the broad construction sector in 2018.

Number of people employed in the Maltese broad construction sector

Number of people employed in the broad construction sector increased by 21.5% between 2010 and 2018

The house prices in the Maltese property market continue to upsurge. The house price index has experienced a strong rise, growing by 17.5% between 2015 and 2018. This price increase is partly driven by the growing housing demand, which is boosted by low interest rates on mortgages, strong immigration flows, surging demand for tourist accommodation and growing disposable. Government schemes, such as the Individual Investor Programme and the stamp duty exemption for first-time buyers, are also spurring demand for residential properties.

House price index between 2015 and 2018 increased by 17.5 percent

To meet the growing demand, supply is also improving, as reflected in the number of building permits (Residential buildings, except residences for communities). These increased by 226.5% between 2015 and 2018. The investment in construction amounted to EUR 1.2 billion in 2018, out of which EUR 636 million were invested in dwellings and EUR 568 million were spent on non-residential construction and civil engineering.

Number of building permits between 2015 and 2018 increased by 226.5 percent

Nonetheless, the sharp rise of the housing price brought forward the issue of affordability and access to housing for the population in Malta. To address this issue, the Housing Authority will be pursuing a EUR 50.0 million investment plan over 2016-2020 for the construction of 640 new social housing units and associated infrastructures.

Another priority of the government relates to improving the transport network, especially regarding road infrastructure. The Global competitiveness Report 2019 ranked Malta 115th out of 141 countries in terms of road connectivity and 106th in terms of quality of roads.

The National Transport Strategy 2050 and the operational Transport Master Plan 2025 were launched, thereby to make an improvement in the road conditions.

The implementation of the Master Plan will require an estimated investment of EUR 231 million starting from 2016 till 2020 and additional EUR 397 million for 2021 till 2025. In 2019, the Maltese government planned an investment of EUR 64 million for 14 projects to improve the sustainability, efficiency and safety in Malta’s arterial road network. These investments also aim to reduce the travelling time and decrease air and noise pollution.

The Maltese construction sector has performed fairly well in 2018, and is expected to do so in the years to come, boosted by investments in dwellings and infrastructure. However, the country’s labour and skills shortage may result in adverse impact. To tackle this issue, the government has developed several initiatives including attracting foreign workers, strengthening the education/training system, increasing female participation in the workforce.

Netherlands

The Dutch construction market accounted for 273,136 enterprises in 2018, most of which were SMEs.

The number of firms in the broad construction sector in 2018 increased by 42.5% as compared to 2010, driven by the strong growth in the number of companies in the architectural and narrow construction sub-sectors. The volume index of production in the broad construction sector is expected to increase by 3.5% in 2019 and 2.1% in 2020. The total turnover in the broad construction sector in 2018 increased by 23.5% compared to 2010, driven by a 36.1%, 26.4% and 22.0% increase in the real estate activities, architectural and engineering activities and narrow construction sub sectors, respectively.

Expected growth of the construction sector between 2019-2021

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The volume index of production in the broad construction sector increased by 22.0% over the period 2010-2018. At the same time, the number of workers employed in the broad construction sector increased by 0.8% in 2018 as compared to 2010.

In 2018, the share of gross value added of the broad construction sector in the GDP in the Netherlands was 10.8%, which is 1.7% lower compared to the situation in 2010, but still higher than EU average.

Share of gross value added of the broad construction sector to GDP in 2018

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The rise in housing price is especially expressed in large cities and their nearby areas. Housing demand has been positively influenced by growing disposable income, low interest rates and high consumer confidence.

Over the period 2015-2018, the housing price index increased by 23.6%, whereas the number of households rose by 2.8%. This has resulted in higher prices for existing units.

The number of self-employed people in the narrow construction sub-sector represented 8.8% of the total self-employed workers in the general economy in 2018, 1.5 percentage points lower compared to 2010. The acute shortage of skilled labour remains a challenge in the construction sector in the Netherlands. In spite of having a significant number of job vacancies, most of them remain unfilled, primarily due to skill shortages and lack of appropriate staff training.

The job vacancy rates in the narrow construction sub-sector and real estate activities sub-sector for 2018 were 4.9% and 2.9% respectively. This is significantly above the 2010 levels of 1.5% for each of these sub-sectors.

Investment in innovation and R&D activities also witnessed a growth. Over the period 2010-2016, BERD in the narrow construction sub-sector increased by 111.0% while BERD in the professional, scientific and technical activities sub-sector experienced a surge of 83.9%. Moreover, the Dutch government has introduced various initiatives to promote and integrate the use of digital technologies within the Dutch economy.

Growth in infrastructure investments continues to drive the overall Dutch’s economic expansion. Various PPP projects are already either underway or are scheduled to start in full swing by 2020. Some of the on-going projects include the IJmuiden Sea Lock Replacement Project, the New Limmel Retaining Barrier Project in Limburg and Beatrix Lock Project in Utrecht.

In conclusion, the outlook for the broad Dutch construction sector continues to be strong, driven by high growth in the residential, transportation and infrastructure market. However, its revival is constrained by a shortage of skilled workers and an increasing proportion of older workers nearing retirement age.

Poland

The Polish broad construction sector is composed mostly of small companies and several large players, totalling 522,283 firms in 2018 (an increase of 22.7% over 2017).

Production in construction recorded a growth of 21.5% over the 2010-2018 period, after recording a drop of 10.8% in 2016 relative to 2010.

This growth was mainly driven by a 46.6% increase of production in the construction of buildings segment between 2010 and 2018. Both the production of civil engineering segment and narrow construction segments have exhibited an upward trend since 2016. In particular, the narrow construction segment grew by 20.6% over the 2010-2018 period, followed by the civil engineering segment with 3.5% in the same period. In contrast, employment fell by 3.0% in the 2010-2018 period, reaching 1.4 million people employed in the broad construction sector in Poland.

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The housing market in Poland has performed well primarily driven by the strong economic performance, rising wages and declining unemployment. According to the Narodowy Bank Polski (Polish central bank) report, the average price of existing flats in Poland's 7 big cities (Warsaw, Gdańsk, Gdynia, Kraków, Łódź, Poznań, and Wrocław) reported an increase of 7.11% during 2018 to an average of PLN 6,905 (EUR 1,605) per square metre, 7.87% in 2017, 2.64% in 2016, 1.1% in 2015, representing an acceleration in price growth.

The rise in prices were mainly driven by supply shortages, rise in construction costs and favourable policy schemes, such as the housing subsidies called ‘Apartments for the Young (Mieszkanie dla Młodych , MdM)’.

The housing scheme ended in 2018 but the number of dwelling permits granted increased by 3.3% to 251,030 units in 2018 as compared to 2017, according to the Central Statistical Office of Poland . Likewise, the EU funds allowed Poland to finance large infrastructure projects, including in the transport and energy sector.

The EU budget for the period 2014-2020 is expected to have delivered EUR 28 billion in support to infrastructure and transport.

Despite the decrease in housing transactions, there was a significant increase in the number of new mortgages. According to the NBP, the mortgage market in Poland rose from 1.3% of GDP in 2000 to 9.9% of GDP in 2007, and to almost 20% of GDP in 2018

Construction costs, including materials, but also workers’ wages, have significantly increased. Hence construction companies’ income have largely suffered, as witnessed by the increasing number of bankruptcies. More generally, the issues of late payment and workers shortage already have significant impact on the sector’s growth, preventing companies to develop further. These issues will need to be tackled to ensure the development of the sector, which is expected to grow substantially, by 8.9% in 2019, 4.2% in 2020 and 5.4% in 2021.

Expected construction sector growth between 2019-2021

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The broad construction sector is expected to grow in line with the Polish economy, which is predicted to grow by 4.0% in 2019, 3.6% in 2020 and 3.3% in 2021, due to social transfers, low interest rates and the spending of EU funds.

Portugal

In Portugal, the construction sector seems to be on the recovery path, even though it has not recovered from the 2010 level yet. The number of firms in the broad construction sector has decreased by 7.4% between 2010 and 2018, although 2014 marked the end of the downward trend, with a 16.3% growth between 2014 and 2018. In 2018, there were 167,584 enterprises in the broad construction sector in Portugal, with the narrow construction sub-sector accounting for 51.3% of the total enterprises.

Number of enterprises in the broad construction sector in Portugal

The production of the broad construction sector remained rather stable between 2015 and 2018. The total turnover of the Portuguese broad construction sector in 2016 amounted to EUR 31.7 billion, 37.9% lower than the 2010 level (EUR 51.1 billion). However, it increased continuously from 2014 to 2016 (+4.0%). It is expected to increase and reach EUR 39.9 billion in 2020.

Along with the slowdown in the construction activities, employment has also declined. In 2018, 530,741 people were employed in the Portuguese broad construction sector. While the number of people employed in the sector dropped by 17.9% since 2010, it has continuously increased since 2014 (+16.0%).

After experiencing significant house price falls from 2011 to 2014, property prices in Portugal started to grow. In 2018 the property prices rose by 6.1% (5.4% in real terms) year over year (y-o-y), reaching an average price of EUR 1,220 per square metre (sq. m.). Also, the house price index for existing dwelling and new dwelling in 2018 increased to a level sharply above the 2015 value.

Despite low interest rates, housing loans in Portugal have declined over the past seven years by an average of 2.4% every year from 2011 to 2018. As a result, the mortgage market shrunk to around 46.8% of GDP in 2018, and total outstanding housing loans declined slightly by 0.2% in December 2018 in comparison to December 2017. In Portugal, outstanding residential loans to households declined from EUR 114.5 billion in 2010 to EUR 94.1 billion in 2017 (-17.8%).

In addition, renovation investments have also increased, and are expected to grow in the coming years. This growth is partly driven by external demand and tourism. Consequently, housing availability and affordability have emerged as an important issue, with 50.8% of young adults still living with their parents. This has resulted into a significant demand for rental housing. This issue particularly affects the youth, but also households whose income does not allow them to buy a property, and is too high to qualify for social housing. To address these issues, the government approved a set of key measures for the New Generation Housing Policies in 2018, which target mainly the issue of access to housing.

Furthermore, the government also tackled declining investment in infrastructure.

In April 2019, the Portuguese government approved a 10-year National Investment Program, which is designed to invest EUR 20 billion into transport, energy and environment projects up to 2030.

The construction sector also faces challenges. Skills and labour shortage particularly affect the development of the sector, which is lacking about 70,000 workers, including highly qualified professionals. In addition, the market structure of the sector, with more than 90% of companies being MSMEs, may limit potential investments of the construction sector in innovation. Finally, the issue of late payment, coupled with the limited access to finance (both issues affecting disproportionally MSMEs) limit the liquidity of the sector. Both are factors limiting the growth of the MSMEs segment in the construction sector.

Addressing these issues will be of prime importance to foster the sustainable growth of the sector, and the underlying positive social impacts such as the creation of more and better jobs.

Romania

Over the 2010-2018 period, the Romanian GDP increased by 35.1%, amounting to RON 831.5 billion (EUR 173.8 billion) in 2018.

The overall business confidence in the Romanian economy improved over 2010-2018, on account of increased public infrastructure investment, rising household disposable income, favourable government schemes and lower interest rates.

The volume index of production of Romanian broad construction sector generally declined over the 2015-2018 period, mostly due to the weak performance of the production of civil engineering ( 23.8%).

Production volume index in the civil engineering construction between 2015 and 2018 decreased by 23.8 percent

In parallel, the total turnover in the broad construction sector increased by 24.6% between 2010 and 2018, mainly driven by growth in real estate activities (+69.0%), architectural and engineering activities (+46.1%) and manufacturing sub-sectors (+42.2%).

Turnover in the broad construction sector between 2010 and 2018 increased by 24.6 percent

At the same time, the apparent labour productivity of the broad construction sector decreased by 6.2% between 2010 and 2017. This growth is reflected in all the construction sub-sectors. These experienced substantial growth over the 2010-2018 period, particularly the architectural and engineering activities sub sector (+50.1%) followed by the real estate activities sub sector (+40.8%). In contrast, the gross operating surplus of the broad construction sector decreased by 35.8% over 2010 2017, predominantly due to a fall in the narrow construction sub-sector ( 27.8%) and manufacturing sub-sector (-17.1%). In turn, the total gross operating rate of the broad construction sector also declined by 7.6 percentage points, standing at 11.5% in 2018 (compared to 19.1% in 2010).

Total gross operating rate in the broad construction sector between 2010 and 2017 in percentage points decreased by 7.6 percent

Similarly, the total employment in the broad construction sector also declined by 5.7% over the 2010-2018 period, mainly due to decreases in number of employees in the narrow construction ( 9.2%) and manufacturing ( 5.7%) sub-sectors. This deterioration was partially off-set by positive improvements in the real estate activities (+11.5%) and architectural and engineering activities (+6.8%) sub-sectors.

Since 2015, housing prices have started picking up (+18.6%) for existing and new dwelling, reflecting a strong domestic housing demand. The issuance of residential building permits has increased by 1.2% compared to 2010, reaching 42,694 in 2018. In particular, the number of permits for two or more dwelling buildings has increased substantially (+173.4%) between 2010 and 2018.

House price index for total dwellings between 2015 and 2018 increased by 18.6 percent

Number of buildings permits for two or more dwelling buildings

Number of buildings permits for two or more dwelling buildings increased by 173.4 percent between 2010 and 2018

Romania had one of the highest overcrowding (46.3%) and severe housing deprivation rates (16.1%) in the EU in 2018. These indicators are significantly above the EU-28 average of 15.5% and 4.0% respectively, highlighting relatively poor housing conditions.

To improve the housing market situation, the Romanian government introduced several investment schemes to support the market. The First Home Programme, with a budget of RON 2.0 billion (EUR 418.0 million) for 2018, provides state guarantees of up to 50.0% of the value of the mortgage. Furthermore, the National Housing Agency is implementing several affordable home programmes, including the Rental Housing Units for Young People and the Mortgage-financed Dwellings Programme.

Over the past years, the decline in public spending on infrastructure projects has severely affected the quality of the existing infrastructure stock, especially regarding roads and highways. This issue was further aggravated due to Romania’s poor absorption rate of EU funds and public procurement practices. Nonetheless, significant investment activities have been planned under the General Master Plan for Transport, detailing strategic interventions in transport infrastructure up until 2030, amounting to EUR 43.5 billion (with EUR 27.1 billion for road and EUR 10.2 billion for railway projects). In addition, Romania also benefits from EUR 9.5 billion from the EU Regional Funds under the 2014‑2020 Large Infrastructure Operational Programme (LIOP), to be invested in transport, environment and energy projects.

However, the construction sector is facing substantial labour shortage, particularly for insulation and thermal rehabilitation, with around 50,000 workers needed by the end of 2020 to satisfy this demand. To this end, both public and private training initiatives including dual-VET programmes and improved adult lifetime learning courses has been introduced to upskill the workforce.

Going forward, public infrastructure and residential construction are expected to drive the expansion of the Romanian construction sector, with the broad construction sector turnover expected to rise by 10.6% over the 2018-2020 period. Nonetheless, improved EU funds absorption, better project management, greater public procurement transparency and improved political stability are essential for the development of the sector at large.

Slovenia

Slovenia’s economy has recovered from the crisis and is now growing faster than the EU 28 average. The country’s growth is driven by net exports, private consumption and investment. Reflecting this growth, Slovenia’s broad construction sector has been expanding – though it still remains below the pre-crisis levels.

Slovenia's construction sector is back in positive growth territory, driven by the recovery of the residential and non-residential buildings sector.

In 2018, there were 36,257 enterprises in the broad construction sector in Slovenia, with the narrow construction sub-sector accounting for 62.9% of the total firms.

The volume index of production in the narrow construction sub sector and construction of buildings increased significantly by 16.0% and 52.6% over 2015-2018 respectively. As a result, the turnover of the broad construction sector was expected to reach EUR 10.6 billion in 2018, demonstrating the dynamism of the broad construction sector. The gross operating rate of the broad construction sector, which gives an indication of the sector’s profitability, stood at 10.9% in 2016, 3.7 percentage points higher than in 2010.

The house price index increased by 22.5% over the 2015-2018 period, driven by a 26.2% and 21.9% increase in new dwellings and existing dwellings respectively. This increase is partly explained by the rise of the demand, which is fostered by low mortgage interest rates and increasing mean equivalised income. As a result, there was a rise in mortgage lending to households, growing from EUR 4,844 million in 2010 to EUR 5,976 million in 2017.

To improve access to housing, the National Housing Policy 2015-2025 aims to support vulnerable groups by tackling key challenges such as the affordability of rental housing and the short supply of social housing.

Total investment in construction decreased by 17.4% over the 2010-2018 period (though it has been increasing since 2017). This follows the growth of the residential and non-residential sub sectors, which are planned to keep on growing in 2019 and 2020. In fact, the residential housing market is expected to grow by 7.5% in 2019, 7.0% in 2020; while the non-residential market is expected to grow annually by 5.3% and 5.1% in 2019 and 2020.

Over 2018-2019, the country invested in its various priority rail projects comprising TEN-T network, second railway track on the Divača–Koper line, upgrade of the Zidani Most – Celje, Maribor – Šentilj lines and the Pragersko hub and renovation of the Karawanks railway tunnel, among others. The draft spatial planning laws of 2019 further aim to facilitate modernisation and expansion of international airports at the Jože Pučnik Ljubljana, Edvard Rusjan Maribor and Portorož airports.

While those investments offer bright prospects, the Slovenian broad construction also faces several challenges. Namely, the lack of skilled labour and the worker shortage affect the capacity of the sector to develop and seize new business opportunities. This is one of the key issues the construction sector will have to address to grow sustainably. 

Slovakia

The Slovak broad construction sector is composed of mostly small and medium sized companies and few large players, totalling 157,931 enterprises in 2018.

The number of enterprises in the narrow construction sub-sector declined by 10.4% between 2010 and 2013. Subsequently it gained pace and rose by 43.5% between 2013 and 2018 (117,553 in 2018).

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This increase was mainly driven by a 154.8% increase in the development of building projects and 67.1% increase in the construction of residential and non-residential buildings, boosting activity in the narrow construction sub sector over 2010-2018. Correspondingly, the volume index of production in the construction of buildings also grew slightly by 1.2% over 2015-2018. Further, the number of companies in the real estate sub-sector grew by 131.0% between 2010 and 2018, while the number of enterprises in the manufacturing sub-sector dropped by 6.6% over the same period.

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In parallel, employment in broad construction sector increased by 16.2% between 2010 and 2018 reaching 299,477 workers in the broad construction sector in Slovakia.

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The construction confidence in Slovakia is growing since 2013. Between 2013 and 2018, construction confidence indicator improved from -49.8% in 2013 to -4.6% in 2018, paving the way for the investment growth in the sector. In line with this, Slovakia showed a strong growth in terms of investment per worker in the broad construction sector (+54.5%) in 2010-2016.

The residential construction market in Slovakia is growing notably due to low interest rates and rising incomes . In 2017, the average interest rate of new housing loans was about 2.9% . Over 2017-2018, the price of new dwellings increased by 6.0%, supported by an increasing demand from both domestic and foreign investors. The number of dwellings complete in 2018 increased by 12.5% compared with 2017 (reaching 19,071 dwellings). Likewise, the number of new building permits increased by 11.4% over 2017-2018, indicating rising demand for residential construction

Expected growth of value added in the broad construction sector in 2019-2021

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Policy initiatives in Slovakia over 2010-2018 impacted the access to information for enterprises on matters related to single market. To support SMEs within the single market concept, a single point of contact in place – SOLVIT centre was established. According to the Regulation EU 305/2011 on construction products, the Ministry of Transport, Construction and Regional Development serves as the main Product Contact Point for Construction (PCPC).

In 2018, the Slovak government designed ‘National Support for the Internationalisation of SMEs’ with a budget of EUR 31 million. It aims to provide support services and a single point of contact for SMEs planning to expand into foreign markets, such as information around foreign markets along with financial and legal aide.

The Slovak construction sector outlook remains positive over the period 2019 2027 with an average annual growth rate of 2.1% over the forecasted period.

Spain

The Spanish economy recorded a strong growth in 2018, even though it marked a slight slow-down in comparison to previous years. In 2018, the country’s GDP grew by 2.4%, a slight decrease from 2.9% in the previous year.

Mirroring the trends of the overall economy, the broad construction sector in Spain also gained momentum. The volume index of production in the narrow construction sub-sector increased by 6.0% between 2015 and 2018. Likewise, the volume index of production in the construction of civil engineering and the construction of buildings grew by 12.3% and 5.3% over the time period.

Volume production in the construction of civil engineering between 2015 and 2018 increased by 12.3 percent

Even though the turnover of the broad construction experienced a 41.8% decline between 2010 and 2014, it increased continuously until 2018, reflecting the growth of volume index of production. However, the turnover of the broad construction sector reported a decline of 18.3% between 2010 and 2018, reaching EUR 226.5 billion. This decline was mainly due to a 27.9% and 7.3% decrease in the turnover of the narrow construction and manufacturing sub-sectors. In contrast, the turnover of the real estate activities and architectural and engineering sub-sectors increased by 35.4% and 0.5% respectively in the same period. However, the turnover of the broad construction sector has continuously increased since 2013, when it reached its bottom low of EUR 155.3 billion.

Turnover of the broad construction sector between 2010 and 2018 decreased by 18.3 percent

In parallel, the profitability in the sector has also experienced a decline between 2010 and 2017. While the gross operating rate of the broad construction sector increased from 13.0% to 14.0%, three out of four sub sectors experienced a decline (the narrow construction, real estate activities and architectural and engineering activities sub sectors), thus indicating lower profit margins.

This may be partly explained by two factors: the decline observed in the apparent labour productivity and the increase of construction costs (and especially input material cost). Between 2010 and 2018, the apparent labour productivity across the narrow construction and real estate sub-sectors declined by 13.3% and 11.1% respectively. In parallel, input materials cost increased by 7.3% between 2015 and 2018.

Apparent labour productivity in the narrow construction sub sector between 2010 and 2018 decreased by 13.3 percent

Employment in the Spanish broad construction sector recorded a decline of 15.7% over the 2010 2018 period. This fall was mainly due to decline in the employment across all the sub sectors except for the real estate activities sub-sector, which experienced a 39.7% increase between 2010 and 2018. Employment in the manufacturing, narrow construction and architectural and engineering activities sub-sectors decreased by 23.7%, 22.9% and 4.5% respectively, over the same time period.

Employment in the broad construction sector between 2010 and 2018 decreased by 15.7 percent

The investment index in the broad construction sector has experienced a steady growth since 2015, rising by 14.7% over the 2015-2018 period. The growth was mainly driven by investments in dwellings. The latter rose by 30.8% between 2015 and 2018, in line with the high demand for housing. Investment in non-residential buildings and civil engineering remained rather stable, growing by 0.4% over the same period, due to the ongoing commitment to fiscal deficit reduction.

Total investment in the broad construction sector between 2015 and 2018 increased by 14.7 percent

The housing market is driving the growth of the construction sector. The house price index for total dwellings has increased by 18.6% between 2015 and 2018. This was mainly driven by a 20.1% rise in the price of new dwellings and an 18.3% growth in the price of existing dwellings. Also, the demand for housing is expected to increase in the years to come, and the need for additional housing has been estimated at 140,000 annually until 2024.

In addition, the government has taken several actions to address the housing shortage and the issue of affordability and renting. In March 2018, the Spanish government approved the new State Housing Plan for the period 2018-2021.

House prices index between 2015 and 2018 increased by 18.6 percent

While the sector’s prospects are positive, it faces some key challenges. These include labour shortage, the issue of late payment, as well the indebtedness of construction SMEs. These may threaten the long term sustainable development of the sector.

Overall, the outlook for the broad Spanish construction sector is positive, mainly driven by the housing market. Tackling challenges such as labour and skill shortages will help realising the full potential of the construction sector.

Sweden

The Swedish economy exhibited strong growth over recent years, primarily driven by the strong domestic demand. The country’s GDP grew by 2.1% in 2018, a slight decrease from 2.2% in the previous year. The country’s domestic consumption has benefited from the continued favourable monetary policy and rising employment.

Mirroring the overall economy, the broad construction sector in Sweden also gained momentum. Between 2015 and 2018, the volume index of production in the narrow construction sub sector increased by 7.6%. It was primarily driven by the increase in the volume index of production in the construction of buildings (+8.5%) during the period, while the volume index of production in construction of civil engineering experienced a decline of 7.6%.

The acceleration in production resulted into a significant rise in turnover. Total turnover in the broad construction sector reached EUR 137.0 billion in 2018 from EUR 95.1 billion in 2010, marking a 44.1% increase during the period. The narrow construction sub-sector registered the highest share within the sector, accounting for 58.0% of the total turnover in 2018.

Moreover, the profitability in the sector has also experienced increases. This is reflected in the rising labour productivity. Between 2010 and 2017, the apparent labour productivity in the broad construction sector increased by 20.2%. Labour productivity across all construction sub-sectors displayed a similar trend between 2010 and 2018. Similarly, the gross operating surplus of the broad construction sector improved, indicating a rise in the sector’s profitability. It recorded an acceleration of 55.0% between 2010 and 2017, reaching EUR 24.3 billion.

In parallel, employment in the Swedish broad construction sector recorded a significant growth of 27.4% over the 2010-2018 period. This was mainly driven by the increase in terms of people employed in the architectural and engineering activities sub sector (+34.9%), followed by the narrow construction (+31.1%), real estate activities (+14.9%) and manufacturing (+7.2%) sub sectors in the same period.

The investment index in the broad construction sector experienced a steady growth since 2015, rising by 15.7% over 2015-2018. This was primarily driven by the investment in dwellings. In line with the high demand for housing, it recorded an acceleration of 15.1% between 2015 and 2018. Investment in non-residential buildings and civil engineering increased at a higher pace, by 16.6% over the same period.

The house price index for total dwellings has increased by 14.4% between 2015 and 2018. However, it slightly declined by 1.0% in 2018 in comparison to 2017. The rise in house price is partly driven by a combination of structural bottlenecks to housing supply, especially in the main urban areas, combined with favourable tax treatment of home ownership and mortgage debt.

The Swedish government is actively investing in the civil engineering sector. In particular, the transport network was the focus of investment under the 2014-2025 national transport plan, which had a budget of SEK 522 billion (EUR 52 billion). Further in June 2018, the government adopted the national plan for infrastructure 2018-2029, involving a total investment of SEK 700 billion (EUR 67.0 billion). These long-term plans also help ensuring more predictable developments in the civil engineering sector, which construction companies can exploit and prepare for.

Despite favourable economic and investment environments, the Swedish construction sector’s development is experiencing difficulties. Labour and skills shortages are limiting the production and putting a strain on profit margins, as wages are pressured upwards. Moreover, bottleneck vacancies in construction persist in posing a barrier to growth, especially regarding white collars type of professions (site managers, civil engineers and technicians).

Overall, the outlook for the broad Swedish construction sector is positive, mainly driven by non-residential and the infrastructure i.e. transport. But this is mainly dependent on EU funding and national public sector initiatives. Tackling challenges such as labour and skill shortages will help realising the full potential of the construction sector.

United Kingdom

The number of enterprises in the broad construction sector in the United Kingdom totalled 541,973 in 2018. This is an increase by 29.3% over 2010-2018, mainly driven by the 45.2% increase in the number of architectural and engineering companies. Despite dropping in 2012, production in the broad construction sector has been increasing ever since, being 28.9% above the 2010 level in 2018. In turn, in 2018, the broad construction sector employed 2,753,944 people, a 12.3% increase compared to 2010 (2,452,168).

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In parallel, the UK housing market is facing two key issues. House prices have increased significantly in recent years (+34.1% between 2010 and 2018), outpacing pre-crisis levels. This growth is affected by the housing shortage currently faced by the UK. To address this issue, the UK would need to build an additional 232,000 to 300,000 new units per year. In 2018, the Government added GBP 500 million (EUR 566 million) to the Housing Infrastructure Fund, which is now worth GBP 5.5 billion (EUR 6.2 billion) to support the construction of 400,000 homes by 2021. The British Business Bank aims to provide guarantees supporting up to GBP 1 billion (EUR 1.13 billion) of lending to SME house builders through its new scheme.

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The UK government, in its autumn budget 2018, extended the National Productivity Investment Fund (NPIF) until 2024 and expanded it to a total of GBP 37 billion. This fund would be used for investment in areas that are essential to boost productivity – transport, digital communication, R&D and housing. The National Infrastructure Delivery Plan 2016-2021 includes a GBP 600 million (EUR 651.6 million) infrastructure pipeline. In addition, the GBP 31 billion (EUR 33.7 billion) National Productivity Investment Fund is also financing investments in infrastructure, housing and research and development (R&D) over 2017-2022. These policies are supporting the growth of the broad construction sector in the UK.

The UK construction sector is the 5th worst hit sector in the UK in terms of job loss (14,167 jobs lost) related to uncertainty around Brexit. The labour and skills shortage is anticipated to rise to 215,000 workers post-Brexit.

The labour shortage would negatively affect the ability to deliver the planned housing units and ambitious infrastructural projects, and could entail increases in construction costs after leaving the EU Single Market.

In terms of sustainable construction and energy efficiency, UK intends to reduce its greenhouse gas emissions by 80% till 2050 . This will have effect on the construction sector in the UK, putting non-sustainable practices in the sector into question.

Analytical reports

Analytical reports are documents providing the EU with a wide analysis of the socio-economic and environmental performance of the construction sector and recommendations for possible strategies to increase the sector's competitiveness.

Trend papers

Trend papers are analytical reports that describe specific aspects of the main trends in the construction sector. The reports also contain relevant good practice examples from a policy and industry perspective.

Policy measure factsheets

ECSO identifies and analyses specific policy measures that are being implemented in each EU country to stimulate construction sector employment, growth and opportunities. These are shown in the policy measure fact sheets, organised by thematic objective below.

Thematic objective 1

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

Thematic objective 3

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Italy

Lithuania

Luxembourg

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

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