Construction begins to slow: what does this mean?

2023-08-20 19:59:35

The construction sector will grow by almost half in 2023 compared to 2022 in Catalonia. This does not mean that it will go down, but rather that the rise it was leading to has slowed down and that in 2022, according to data from the Chamber of Construction Contractors of Catalonia (CCOC), it grew by 4.5%, a a significant percentage but which had not yet allowed it to reach the pre-pandemic levels of 2019. Now, the same body predicts a slowdown that may put this percentage at just 2%. The reasons are multiple. On the one hand, the sharp rise in raw materials has made it difficult in recent years to reach the pace of before the pandemic. The covid crisis first caused shortages and then greater competition to obtain raw materials, which has increased prices. For example, from December 2020 to June this year, corrugated steel has risen by 59% and metal profiles between 34% and 56%. All this considering, moreover, that energy has also become more expensive by 89%, in this case due to the effects of the war in Ukraine.

The rise in the price of raw materials and the increase in rates, among the main causes of the slowdown

Another cause is the rise in interest rates, a measure by the European Central Bank aimed at curbing the rise in inflation, which has reduced the demand for both private mortgages and loans from developers. All in all, in a context of some legislative uncertainty, complaints from employers about the lack of qualified labor and also criticism from employers about the lack of investment in public works, despite the fact that in recent years enough has still been done driven by the European Union’s Next Generation funds.

It’s too early to tell if this slowdown is an early warning of what’s to come this semester. In recent years we have seen how the geopolitical situation, very unstable, can change forecasts drastically in a short time. The World Bank warned in June that this semester the economy would worsen with less growth than expected, but at the global level its forecasts could be short if the crisis in China is really confirmed, which also largely has a real estate side that worries analysts.

What is clear is that the Spanish economy, and also the Catalan economy – which have maintained a good strength in recent months if compared, moreover, with the context of European Union countries such as the increasingly worrying German economy –, may suffer a shortfall if the political instability lasts too long. In January, the European Union will re-impose the deficit limit and the rules that had been relaxed due to the chain of covid crises and the war will be tightened again, and then it will be important that clear protection measures can be taken of an economy that, right now, has survived thanks, again, to the construction services sector. If there is a repeat election, the uncertainty will extend for even more months. If there is none, and Sánchez ends up governing again, he will have a harder time applying the expansionist public spending policies he has done so far because control of the deficit ceiling will now, thanks to the Montoro law, be in his hands of a Senate completely dominated by the PP. A complicated autumn is coming.