Bumpy recovery

The first half of 2021 was marked by quick economic recovery, particularly among Sweden’s most important trade partners due to vaccinations, eased restrictions and a strong demand for products. The positive turnabout led to a relatively fast recovery in global trade, which also meant supply problems in the form of shortages in components and transportation. There were several other bumps along the road to recovery and development was characterized by growing uncertainty in the latter part of the year. Inflation accelerated after the summer and has penetrated more and more sectors. On top of that it is now expected to be more enduring than the market first anticipated. The United States was the most noticeable example where last year, inflation was the highest it has been in thirty years. Problems caused by the component shortage have been compounded by an energy shortage and rising prices as well as growing uncertainty about China’s capacity as an international economic engine, also due to energy shortages and rising prices. The recent dramatic developments in Ukraine have a key impact on external circumstances. In addition to the tragedy of the people the war touches, the situation risks hampering macroeconomic growth in the world. In Sweden this can affect the construction industry through greater uncertainty and cautiousness concerning investments, continued high material and energy prices as well as material shortages and delivery problems. Total growth in the global economy in 2021 is calculated at around 5.8 percent after a decline of about 3.5 percent in 2020. The forecast for growth in 2022 indicates an increase of slightly more than 4.0 percent. The upturn in 2021 was somewhat weaker in EU and estimated at 5.3 percent. However, recovery may end up aligned with the rest of the world.

At the 26th Climate Summit COP26, that took place in the beginning of November, the 194 countries that signed the Paris Agreement reported on what they had achieved so far regarding their commitments. One of the main points on the agenda was to review how much the countries needed to raise their ambitions to reach net zero emissions by 2050, in order to keep global warming at around 1.5 degrees. The IPCC states in its latest report that the world must immediately begin to significantly and continually reduce emissions for us to have a chance at achieving the 1.5 degree target. The IEA has concluded that investments in green energy and transportation must treble from current levels over the next eight-year period. There were several positive results from the meeting such as phasing out coal power plants, stopping deforestation and reducing methane gas emissions. But now we have to walk the talk. In many ways Sweden is a model country regarding planning and building sustainable environments for the future. Community builders, together with political will and drive, are important tools in this process. These issues will undoubtedly continue to dominate and permeate almost all our investments and strategic choices.

Sustainable cities are not only a matter of reducing climate impact in construction and future management. The question is also how buildings, facilities and environments can create positive environmental and social effects such as generating renewable energy, contributing to biodiversity and being secure and inclusive for their inhabitants. On top of this society is going through rapid digitalization and behavior changes that can topple old truths about where we want to live and how we can shape our work and daily lives.

The economy in Sweden

The Swedish econ­o­my re­cov­ered surprisingly well dur­ing 2021 and the positive development touched a large part of businesses. The man­u­fac­tur­ing in­dus­try experienced some glitches due to component shortages, which particularly affected the automotive industry negatively. House­holds’ confidence in the economy rose thanks to eased restrictions, low interest rates, good stock market developments and rising property prices. Optimism diminished somewhat in the latter part of the year due to rising inflation, energy shortages and the renewed spread of the virus. The forecast for 2022 is positive with continued good financial growth, low interest rates and contracting un­em­ploy­ment. However, there is a risk that rising energy prices and supply disturbances, as a result of the war in Ukraine, may have a negative impact on both households and industry.

The economy in Norway

The Nor­we­gian mainland econ­o­my has recovered and even surpassed the level it was at before the pandemic. House­hold consumption rose substantially in 2021 as society opened up again and private consumption became an important engine in financial growth. Conditions for strong growth in house­hold consumption continue to be good for 2022. The level of orders received in industry is good but production is stymied by a shortage of input goods. With resource consumption on the rise, investments are expected to increase in 2022. Expectations on the negative side are weak oil in­dus­try in­vest­ments, a labor shortage in industry and rising interest rates as well as rising energy prices and supply disturbances, as a result of the war in Ukraine.

The economy in Finland

Fin­land’s economy grew at a good rate in 2021 due to private consumption and a considerable rise in exports. The forecasts for 2022 indicate an upturn in the GNP which, although the rate will not be as high as in 2021, has several strong points – higher investments, quickly contracting unemployment and a significant increase in house­hold consumption. However, the uncertain situation in the world can have a negative impact on exports. Higher capacity utilization is expected to accelerate investments in 2022. A stronger labor market benefits public finances but it is vital that employment increases among older workers since new calculations reveal that prob­lems with the country’s aging pop­u­la­tion are greater than were previously known. There is also a risk for rising energy prices and supply disturbances, as a result of the war in Ukraine.

Investments 2017-2022 F1),2)

Housing investments
Initiated construction projects
F=Forecast
Other building construction investments
Initiated construction projects
F=Forecast
Civil engineering investments
Ongoing investments
F=Forecast

1) F refers to forecast. 2) The effects of the war in Ukraine have not been taken into consideration in any of the forecasts.

New construction investments accelerated in Sweden

After a slight rise in build­ing con­struc­tion volumes in 2020 developments accelerated in 2021. The positive trend involved both homes and private and public buildings. New construction investments were behind the hike while renovation of premises dropped. The highest growth percentagewise was in industrial build­ing con­struc­tion and particularly in new warehouses and logistics facilities. Whether or not Cementa would be able to continue to quarry limestone on Gotland created uncertainty but last fall the government decided to allow it to continue until December 31, 2022. Nonetheless, a long-term solution remains unclear. Civil en­gi­neer­ing in­vest­ments, calculated to have grown in 2021, are ex­pect­ed to drop back in 2022.

Splin­tered upturn on the Norwegian construction market

After a decisive up­turn in 2020 the rate of started-up build­ing con­struc­tion investments slowed somewhat in Norway in 2021. The upturn was splin­tered. The strongest increase was in renovations of pri­vate and public premises. In housing, sin­gle home con­struc­tion drove growth while new construction of apart­ment build­ings went sideways. All in all build­ing con­struc­tion is ex­pect­ed to develop horizontally in 2022. Sin­gle home con­struc­tion and public build­ing con­struc­tion investments will probably be positive driving forces. As the economy gets stronger conditions for the construction market become more positive. Most likely Norges Bank will raise interest rates in stages in 2022, which can slow down housing construction. Civil en­gi­neer­ing in­vest­ments, calculated to have grown significantly in 2021, are ex­pect­ed to continue to show good growth in 2022.

Office construction weighed down the strong Finnish construction market

Build­ing con­struc­tion in­vest­ments accelerated in 2021 on a broad front. In­dus­tri­al build­ing con­struc­tion in­vest­ments took a dramatic turn upwards. One exception was new con­struc­tion and renovation investments in offices, commercial space and hotels which declined during the year. A quick recovery of the labor market benefits the housing market which also ought to be further boosted by relatively modest inflation and continued negative interest rates. In total, build­ing con­struc­tion in­vest­ments are ex­pect­ed to de­cline in 2022. Hous­ing con­struc­tion may be stymied by a drop in apart­ment build­ing con­struc­tion while other build­ing con­struc­tion will be benefited by growing investments in offices and commercial space. Civil en­gi­neer­ing in­vest­ments seemed to have contracted somewhat in 2021 and the forecast for 2022 indicates zero growth.

The effects of the war in Ukraine have not been taken into consideration in any of the forecasts.

Danish paving market on par with 2021

Last year the Danish Parliament adopted a new infrastructure plan with more money for state roads over the period 2022-​2035. This means that the low level of new con­struc­tion in state roads in 2021 is expected to lift at the end of 2022 with a significant increase noticeable first in 2023. In 2022 mu­nic­i­pal investments are ex­pect­ed to re­main on the same high level as in 2021, for both new con­struc­tion and main­te­nance. The private market has shown continued high activity and is expected to remain on the same level in 2022. The as­phalt in­dus­try ex­pects the en­tire vol­ume of as­phalt pro­duc­tion and paving in 2022 to be around the same level as in 2021.

Other major players

Al­though the Nordic con­struc­tion mar­ket con­sists main­ly of a large num­ber of small com­pa­nies op­er­at­ing under in­tense com­pe­ti­tion on local mar­kets there are a few very large, na­tion­al play­ers in addition to Peab. Sev­er­al of them also op­er­ate more or less on the en­tire Nordic mar­ket. Note­wor­thy com­pa­nies in build­ing con­struc­tion are Skan­s­ka, NCC, Vei­dekke, AF Grup­pen and Obos as well as Finnish Kesko, SRV and YIT.

Some of the major ac­tors in road and rail­road con­struc­tion are Skan­s­ka, Vei­dekke, AF Grup­pen, NCC, Sve­via and In­fra­nord.

Some ex­am­ples of major Nordic in­dus­tri­al com­pa­nies are NCC, Skan­s­ka, Colas, Rudus, Be­tongIn­dus­tri and Nor-​Be­tong.

Source of text and graphics: Navet AB