Europe's construction sector is poised for a modest recovery in 2025 following a challenging year marked by a 2% decline in output in 2024. Total construction volumes across the EU are projected to grow by a mere 0.5%. Despite subdued contractor sentiment and ongoing labour shortages, rising house prices and a gradual stabilisation in building permits hint at a potential turning point. The sector's recovery will also be driven by a structural shift towards renovation and sustainability projects, alongside continued growth in infrastructure investments, buoyed by EU Recovery Funds and the energy transition.
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The labour market remains a constraint for the sector. Although the share of employers reporting labour shortages has decreased from 2023, it remains a significant challenge due to an ageing workforce and the slow adoption of industrialisation and digitalisation to improve efficiency. Demand, too, has been weak, with contractors still facing underwhelming order books. However, rising house prices, which hit record levels in 2024, offer a glimmer of hope. Existing and newly built houses are substitutes, and as the price gap between them narrows, residential construction could see renewed activity. The Netherlands stands out as a market where existing home prices now exceed new builds, creating a favourable environment for developers to raise prices and cover increased costs.
Few builders across the EU plan to raise prices significantly, with notable hesitancy in Germany and France. Conversely, higher increases are anticipated in markets like the Netherlands, Poland, and Turkey, where inflationary pressures or improving demand conditions support such moves. In the infrastructure sector, which is less sensitive to economic fluctuations, moderate growth is expected. Investment in energy grids, digital infrastructure, and water management is underpinning this resilience, with Spain and Poland benefiting significantly from EU recovery funds and delayed projects.
The recovery trajectory varies markedly across countries. Germany, the EU's largest construction market, remains stagnant, grappling with five consecutive years of zero or negative growth. In contrast, Spain and Turkey are experiencing more dynamic recoveries, driven by economic growth and reconstruction efforts, respectively. Dutch construction is also rebounding, with housebuilding driving a projected 1.5% growth in 2025, despite bottlenecks like land shortages and grid congestion.
Poland's outlook is cautiously optimistic, with modest growth expected after a significant contraction in 2024. Rising building permits and stronger order books provide some relief, though affordability challenges persist. Turkey, still recovering from years of decline and a devastating earthquake, continues to grow, albeit at a slower pace, as rebuilding efforts progress.
Infrastructure development remains a bright spot, offering consistent opportunities across the EU. Projects related to the energy transition, water management, and digital infrastructure are particularly robust, bolstered by engineering activities that signal continued investment. Spain and Poland exemplify this trend, with infrastructure projects benefiting from both domestic economic momentum and EU support.
While 2025 marks the start of recovery for Europe's construction sector, the path forward is fraught with challenges, including labour constraints, affordability issues, and regional disparities. Nonetheless, rising demand for sustainability-focused renovation and essential infrastructure investments lays a foundation for gradual progress.
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