Market outlook affected by inflation, interest rates and climate transition

In 2022 the global economy was do­mi­nated by the financial effects of the war in Ukrai­ne in the form of rising energy and food prices, and general cautiousness.

However, the glo­ba­l eco­no­my has been re­la­tively resilient due to the fact that industry’s order books were well-filled at the beginning of the year and this is a period of ramping up and climate transition. Nonetheless, escalating prices for ma­te­ri­al, com­po­nen­ts and ener­gy cut into profitability and with external demand down there is less appetite for investments right now.

Primarily households have been negatively affected this time as a result of the escalating cost of heating, interest rates and broad in­fla­tion. It is mostly due to the diminishing demand from households that Europe and the USA in particular are entering a two-year period with weak or negative growth. A re­la­tively large part of Swedish households have mortgages, which makes the Swedish economy particularly susceptible to interest rate hikes. This has negative consequences for both housing construction and price development for existing homes.

Even the com­mer­ci­al real estate market suffers from rising interest rates in combination with weaker demand for services and goods, since farther down the line this can lead to more vacancies and lower construction investments.

In to­tal, the global economy is estimated to have grown by about 3.2 per­cent in 2022. The forecast for growth in 2023 in­di­cates an increase by about 2.3 percent. Eu­ro­pe’s GNP growth in 2022 was aligned with the rest of the world but it is not expected to keep up with other areas’ growth in 2023. Instead it is believed that Eu­ro­pe’s GNP will contract by around half a percentage point.

Important sustainability issues

The Nor­dic countries still have a long way to go to achieve carbon neutrality despite targets and plans for net zero emissions of greenhouse gases. The construction and real estate industries have a vital part to play in climate transition and are therefore dri­ving various ini­ti­a­tives to reduce carbon emissions in line with the Pa­ris­ Agreement, particularly through the Road map for fossil free competitiveness that Peab has also signed onto. The construction and civil engineering industry, together with seven other trade organizations, work within the road map to achieve a climate neutral construction sector. This work comprises the entire value chain from pla­nning and implementation to demolition and reuse.

Creating sustainable cities includes ener­gy ­ef­ficient buildings and a construction process that uses ma­te­ri­al and pro­ces­ses in a climate-adapted manner. Looking at it from a broader per­spec­tive, cities’ sustainability relies on ener­gy-s­mart community pla­nning with, for example, circular flows that lower climate impact. Development is driven by government agencies and customers as well as the construction industry itself. For the contractors it’s a matter of transitioning to being fossil free, electrification, input goods with lower climate impact and environmental waste management and reuse. For the authorities, requirements like climate declarations when erecting buildings from the Swedish National Board of Housing, Building and Planning as of 2022, have led to competence development and new experiences. The 27th Climate Change Conference COP27, which was held in No­vem­ber last year, fo­cused on how the world should adapt to climate changes in order to reduce vulnerability and held negotiations regarding a draft of the work program for the reduction of emissions that was adopted at the previous meeting.

The concept sustainable cities includes financial and so­ci­a­l aspec­ts, in addition to climate and environmental ones. Planning for cities based on financial sustainability entails making wise and well thought out in­ve­stments that withstand the test of time and are flexible enough for future changes. It might also include, for instance, facilitating the ability of residents to make sustainably financial decisions in their everyday life. Regarding the so­ci­a­l aspec­t, the construction industry can remove barriers and iso­lation, in and between city boroughs, to increase safety and create a city for everyone. At the same time the escalating prices for homes in recent years and the risk of diminishing housing construction could very well strengthen exclusion and so­ci­al inequality.