Construction workers expect a decline of 4.6 percent next year according to a survey

Prague - Construction companies expect the market to decline by 4.6 percent next year, with construction possibly growing by 0.1 percent in 2024. According to a study by the analytical company CEEC Research, published today at the Meeting of Leaders of the Czech Construction Industry at Prague Castle, their concerns stem from the ongoing war in Ukraine, the related energy crisis, rising prices, and shortages of construction materials, as well as the development of contracts.

In October, a survey among over a hundred construction companies predicted a year-on-year decline of 3.7 percent for 2023. After a month, nearly three-quarters of the surveyed construction companies (74 percent) expect a somewhat deeper drop of 0.9 percent.

Small construction firms with an annual turnover of less than 100 million crowns expect a market decline of 4.8 percent next year, while large construction companies expect a 4.4 percent drop. Ground construction (building houses) is expected to deteriorate more, by 4.8 percent, while engineering construction (such as road construction) is anticipated to drop by 4.3 percent.

"There are many factors influencing the development - inflation, rising energy prices, the war in Ukraine, thus there are still concerns among construction company directors about future negative developments. The direction of this segment will also depend on the role of the state, which declares that state investments in the construction sector will not be limited," stated Michal Vacek, CEO of CEEC Research s.r.o.

Companies mainly focused on ground construction expect a revenue decline of 3.8 percent in 2023, while engineering construction anticipates a slightly smaller decrease, at 2.8 percent.

Representatives of companies at Prague Castle stated to ČTK that there are concerns about possible suspensions and postponements of already tendered linear constructions for next year.

Transport Minister Martin Kupka (ODS) reiterated that the government approved a record budget of 150.9 billion crowns for the State Fund for Transport Infrastructure (SFDI) for next year in September, which still needs to be approved by the Chamber of Deputies. "This is unique and not just an increase that would cover inflation. An increase of more than 20 billion compared to this year corresponds to the government's priority to maintain investment pace, continue all ongoing constructions, and start long-prepared projects," said Kupka. He mentioned that at the beginning of next year, he will present a forecast for key items for the next ten years.

Two-thirds of construction company directors expect an average revenue decline of 3.5 percent in 2023. "A drop in revenues is anticipated, even though nearly half of the surveyed companies currently have contracted projects for as long as they did in the same period last year, averaging eight months," states the CEEC Research study.

Construction companies often mention the shortage and rising prices of construction materials. For example, bricks - blocks have increased in price by 37.7 percent year-on-year, wood (battens, beams) by 27 percent, and steel (reinforcing meshes/reinforcing iron) by 3.3 percent year-on-year, but over two years by 56 percent.

Petr Vaněrka, the director of the construction supplies company Pro-Doma, told ČTK that a recession is setting in. "The increase in prices reflects the cost of inputs, which mainly includes energy prices, raw materials, labor, and interest. However, how well the set prices hold up will be shown by the invisible hand of the market, which will intervene very soon. Although conditions for discounts have not been created due to constantly rising production costs, a recession may lead to a decrease in the prices of construction materials in the future," believes Vaněrka. He adds that the situation with limited availability of construction materials is a thing of the past.

For most construction materials, neither a decrease nor a significant increase in purchasing prices is expected. According to Vaněrka, stagnation, or possibly a slight increase of a few percentage points, is the most likely scenario. A price decrease may occur with a drop in demand, where prices could fall at the expense of manufacturers' profits.