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)
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