6th August 2021

RICS Global Construction & Infrastructure Monitor, Europe, Q2 2021

Construction activity in Europe continues to shift up a gear, with positive output growth being reported within all sectors, according to the RICS Global Construction Monitor (GCM).

Feedback from survey respondents points to a pickup in activity across virtually all European markets, with the RICS’ European Construction Activity Index rising to +34 in Q2 from +16 in Q1. The latest reading is in complete contrast to the reading of -25 at this point last year.

This improvement was particularly evident in Portugal and the Netherlands, with both recording a reading of over 50. Similarly, the UK, Germany and Ireland all registered comfortably stronger readings in Q2 compared to Q1.

Furthermore, expectations regarding the 12 months ahead moved further into growth territory over the quarter, led by robust projections across the private housing and infrastructure sectors.

Meanwhile, employment in the construction sector in Europe is expected to grow, with a net balance of +28% of respondents projecting an increase in headcounts across the industry over the year ahead (rising from a net balance of +13% in Q1).

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But respondents in Europe were less optimistic about profit margins. Although expectations for profit margins did improve over the quarter (as the net balance moved from -10% to +7%), expectations are only marginally positive.

This is no surprise given that material cost pressures have escalated of late, with 78% of respondents across Europe citing this as an issue constraining construction activity. Indeed, with projections for material cost inflation rising further during Q2, it appears cost pressures are likely to become an increasing headwind, which could act to dampen momentum further down the line.

Simon Rubinsohn chief economist RICS said, “The rebound in construction workloads continues to gain ground in Europe with strong housing markets playing a key role in supporting residential development. Moreover, with the cost of money expected to remain close to zero, there is little reason to believe that this key driver of activity in the industry will diminish in importance over the next twelve months. However the forward looking metrics in the RICS Construction Monitor do suggest that infrastructure will play an increasing significant role in most European countries as government programmes to rebuild economies following the pandemic begin to be more fully implemented.

“As elsewhere around the world, the industry unsurprisingly faces significant challenges as it looks to lift capacity with both material and labour shortages widely being highlighted in the survey and evident in the projection of higher costs. Against this backdrop, the hoped for rebound in profitability is likely to be a little more drawn out with tender prices struggling to keep pace.”

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