Construction industry stuck between high backlog of orders and material shortages

Construction industry stuck between high backlog of orders and material shortages

The construction industry got off to a good start in 2022. In 2021, incoming orders rose by 9.4 percent in nominal terms and 2.3 percent in real terms. The volume of orders in hand at the turn of the year stood at 64 billion euros, its highest value ever. Business sentiment in mainstream construction industry in December 2021 was a good eight points higher than one year previously. On the demand side, construction activity was on firm ground.

The war in Ukraine has completely changed this situation and has had a manifold impact on construction production in Germany. A third of construction companies surveyed procure their building materials from Russia, Belarus or Ukraine. Nine out of ten companies reported that the war has had a direct or indirect negative impact on their business operations, mainly in the form of shortages and sharp price increases in a range of building materials and the steep rise in energy prices.

Three out of four companies reported delays in their current construction projects, with a third facing cancellations. In the ifo survey of April 2022, every second construction company said material shortages were curbing their production levels. Before the outbreak of the Ukraine war, this only affected 21 percent of companies in the industry.

The situation is compounded by homemade problems such as the abrupt termination of the funding for new energy-efficient housebuilding followed by a temporary reintroduction of the scheme with a lower budget which was used up within four hours. This environment does not quite produce the longterm reliability that investors like to see and is especially problematic given the increasingly stringent requirements for climate-friendly construction.

In the current year, the construction industry will be facing problems above all in public construction as it is trapped between budget restrictions and rising construction prices. All public budgets only have a certain sum budgeted for investments, including construction measures. As a consequence, the current substantial rise in costs of tendered construction projects will be carried out at the cost of other measures which were initially also planned. The price increases will also mean that the nominal increases in investment planned, on the federal level for example, will actually result in a decrease in real terms.

The construction industry has therefore downwardly revised its forecast from the turn of the year for construction sales in mainstream construction in real terms in 2022, from growth of 1.5 percent to between stagnation and a decrease of two percent. The workforce of the industry is expected to continue growing nonetheless, to replace older employees scheduled to retire in the next few years. In the current year, the number of employees working in mainstream construction should average out at 920,000 employees.

Contact: Heinrich Weitz / Phone: +49 30 21286 144 / Mail: heinrich.weitz@bauindustrie.de