Construction across the EU performed stronger than the overall economy, but fortunes varied between nations, depending greatly on the restrictions imposed, and recent geo-political tensions.

In general, the building sector was harder hit than the civil engineering sector. In the early stages of the pandemic, Germany, one of the nations lesser hit by the pandemic, saw construction activity rise almost 3 percent, according to EU indicators.

Despite the pandemic, most markets are seen as warm or hot, and overall likely to heat up. More widely, confidence has been boosted by the European Commission putting the construction sector central to its drive towards a green and digital future.

However, the industry faces challenges, not least skills shortages across most markets, particularly for electricians and plumbers. These have been exacerbated by restrictions to free movement caused by COVID-19 and Brexit. The pandemic is causing ongoing disruption, increasing costs and delays and fuelling market uncertainty.

The expectation across the region is that inflation in the construction sector will increase over the next year.

Future outlook

Overall, the European construction sector seems to be moving from crisis to boom with remarkable speed, with many nations recovering quickly. The €672.5bn committed as part of the EU’s Recovery and Resilience Facility (RRF) should soon start to make an impact. Public investment, as a proportion of GDP, is set to reach its highest level in more than a decade in 2022. With the crystallisation of economic development around the environment and the digital economy, this should provide a strong platform for consistent growth in the region in the long term.

Progress of the environmental agenda

A significant part of the progress made over the past decade in the cutting of global carbon emissions has come from Europe, with emissions down about 10 percent between 2009 and 2019. More than a third of EU electricity now comes from renewable sources, excluding nuclear which generates a further quarter. However, the figures tend to flatter more advanced nations, especially those now less industrialised that have seen “dirty” industries move abroad. This has widened the gap between carbon emissions consumed and produced.

Looking ahead, Europe faces a major challenge to improve its large stock of older buildings that will require retrofitting, particularly in the commercial and residential sectors, which jointly account for 40 percent of EU energy consumption.

Regional construction cost performance

Top three construction challenges