The Estonian Economy - The construction sector will not contribute to economic growth this year

The construction sector will not contribute to economic growth this year

  • After three consecutive years of strong contribution to economic growth, the construction sector is not supporting economic growth this year.
  • Labour shortages in construction have eased somewhat, and risks of excessive growth of labour and construction costs should reduce, going forward.
  • While residential building construction should grow moderately, it is hard to expect high growth rates of nonresidential building construction.

In the previous two years, construction volumes of Estonian construction enterprises on the domestic market increased on average by more than 20% but turned into a decline in the beginning of this year. During the first three quarters of this year, construction volumes declined by 2% year on year. However, construction volumes are still at a high level. Nevertheless, after three consecutive years of strong contribution to economic growth, the construction sector is not supporting economic growth this year; on the contrary, it is hampering growth.

Labour shortages have eased somewhat in the construction sector. As construction volumes have past the peak and order-book levels have declined, construction companies are reporting insufficient demand as the main constraint limiting building activity, whereas the shortage of labour is not the main issue anymore. Thus, risks of an excessive growth of labour and construction costs should also fall, going forward.

Although, for a more comprehensive analysis both building and civil engineering should be taken into account, this paper is focused mainly on building construction. In residential building construction, 25% more constructions were completed, and 20% more building permits issued during the first three quarters of this year. In the segment of nonresidential buildings, there were 25% fewer constructions completed, and the number of building permits fell. It can therefore be expected that, although residential construction will grow moderately going forward, it is hard to expect high growth rates of nonresidential construction volumes.

PDF-Document Full analysis: The construction sector will not contribute to economic growth this year

For more information please contact Ms. Marianna Rõbinskaja, +372 888 7925, marianna.robinskaja@swedbank.ee

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