Construction on the threshold of a new era

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PRAGUE, 4 June 2024 - The construction sector in the Czech Republic is bracing for a slight market downturn in the second half of the year, estimated at 1.2 % on average. This is a more positive estimate than firms expected at the end of 2023 and also 0.5 % better than last quarter. This is because construction is an inertial industry and therefore changes in development come with a greater lag. However, in 2025, companies already expect the market to recover and grow by 2.4 %. This results from the Quarterly Analysis of the Czech Construction Industry Q2/2024, published by CEEC Research at the conference Meeting of Leaders of the Czech Construction Industry at Prague Castle.

This expected growth is partly supported by hopes of an economic recovery that could stimulate investment in construction projects and infrastructure. Analysts and managers in the construction sector believe that not only will the growth rates of previous years be restored, but also new opportunities for the development of the sector as a whole will be added.

Interestingly, large construction companies are more optimistic than small companies. While the large ones expect a slight decline - about 0.3 %, the small ones expect a decline of up to 2.2 %. Large firms have better access to capital and a better ability to weather short-term market turbulence, while small ones may be more sensitive to immediate economic factors.

Differences in expectations are also evident according to the specialisation of firms.

While civil engineering companies, which benefit from long-term public investment, expect the market to grow by 1.5 % this year and then strengthen by 2.6 %, those specialising in civil engineering predict a decline of 2.4 %, and a turnaround next year, with growth of 2.3 %.

"Company forecasts suggest that the situation should turn for the better in 2025, when construction company CEOs are anticipating an overall market recovery. However, the growth in construction output will depend on how the overall economic situation develops and the appetite of investors to write contracts. For transport infrastructure, the news is positive, unlike civil construction, where a much slower market recovery can be expected." says the director of CEEC Research on the current analysis Michal Vacek.

"The year 2024 is a year of expectations and gradual growth for the construction market. We believe that the movement of the market is clearly due to the development of interest rates. However, we will have to wait until early 2025, when the mortgage interest rate threshold could be below 3.5 %, to see a major pick-up in construction. According to our internal data, it can be said that investors' desire to own their own home has not disappeared, but in the context of the domestic economic situation, which has not been entirely favourable, they have decided to postpone investment in their own home and wait for better financing conditions," CEO and Managing Director of Wienerberger shares the optimism in the development Kamil Jeřábek and confirms the data from the CEEC Research survey.

Jaroslav Heran, CEO of Metrostav, sees the situation on the construction market similarly, but adds that: "The big unknown and risk of the above optimistic forecast is the implementation of the new Building Act when it comes into full effect on 1 July 2024. Any failure to manage a smooth transition to the new system of work of building authorities may cause blockage of new building permits and a decline in the construction industry, which is now difficult to define in terms of volume and time."

Moritz Freyborn, Chairman of the Board of Strabag, which won second place in the TOP Construction Company of the Year competition, commented on the situation on the construction market: "In view of the higher volume of contracts awarded in the transport construction sector, I expect a positive development in this area. We can expect a big fight on the price front, especially for large projects. Civil engineering is likely to see a slight decline this year. This should be reversed in the coming months by lower mortgage rates and the associated recovery in residential construction in particular."

Chairman of the Board of Directors of Central Group - Dusan Kunovsky comments on the situation from the perspective of the largest residential builder: "The housing market is already recovering significantly and the construction industry should gradually start to pick up with the further decline in interest rates. However, I expect a major recovery in civil engineering to occur more in the next year."

The construction industry is on the threshold of a new era

After years of downturn caused by the covid, the energy crisis, high interest rates and therefore reduced demand for residential property and other reasons, construction companies are looking for better times again and the construction production curve is rising again. The return to green numbers, however, will take time, as the construction industry is an inertia industry and responds to changes, whether positive or negative, with more distance.

The increasing level of digitalisation and the government's ambition to support the digital transformation of the Czech construction industry can also help significantly. We are now in a period that is more than ever favourable to the development of the Construction 4.0 concept, which should follow a similar transformation as the Czech industry under the Industry 4.0 initiative.

(za)