Macro outlook
and the market
As inflation leveled out during 2024 the conditions for construction investments in the Nordic region began to brighten. Nonetheless, recovery was weak and splintered between different sectors and in most countries housing construction continued to decline. All the Nordic economies are expected to grow somewhat in 2025 and investments in both building construction and civil engineering are expected to increase.
Uncertainty about new trade policies
Growth in the global economy is estimated to have been just over three percent in 2024 and the forecast shows similar growth for 2025. This is a clear decline compared to the growth figures from before the pandemic when global GNP growth was around 3.7 percent annually. However, economic growth differs significantly from one country to another. The USA, which in recent years has driven the global economy, is expected to slow down substantially and therefore other economies will have to make up the difference. On the other hand the economy may get a further boost by President Donald Trump’s “America first” politics or the trade tariffs may initially create a commotion before the conditions become clear. If policy contributes to extended trade war and an increasing inflation, growth can be affected negatively. China’s growth looks like it is losing steam as well, impacted by both the real estate crisis and restrained consumption by households. The forecast for the Eurozone is modest in both 2024 and 2025 compared to global growth and the USA and China. Europe’s recovery from weak growth in recent years is challenged by geopolitical uncertainty. The risk of trade tariffs can have a negative effect on exports as well as investments and employment in the region.
Focus on climate transition
Climate transition and energy efficiency are focal points in the construction and real estate sector. We need to reduce climate impact in what is being built and make existing structures more energy efficient. Developments are being driven by the industry’s competence and initiative together with technological advancements and national implementation of EU legislation. The purpose of the directive is to achieve a fully decarbonised building stock by 2050 at the latest. The social adjustment will be profound. Structures, business models and mindsets will be challenged. The construction process may be affected in many aspects, for example, to a greater degree and in a sustainable way preserving, maintaining and converting existing buildings. This also includes optimizing material consumption, reusing and making extraction and production processes more energy efficient in order to reduce emissions throughout the entire process and on construction sites.
Investment are still needed despite the cost levels
In addition to the impact of climate change, developments in the construction and civil engineering industry are affected by external circumstances such as innovations, tech developments, laws, changes in attitudes and behavior as well as developments on the market and financial circumstances. Over the past two or three years costs have shot up due to inflation, rising financing expenses and higher material prices. This in combination with a weaker demand has put financial pressure on companies, general contractors, municipalities and property owners. As a result projects have been postponed, including green transition projects. The challenging financial situation has primarily impacted housing construction, but private and public premises projects have been affected as well. Similarly, civil engineering construction has been impacted, but here recovery already began in 2023. Despite these challenges activity in the civil engineering sector has been high during the past year. According to The Swedish Construction Federation, the private sector with investments in energy supply, waterworks and waste management is the driving force behind this growth in 2024. There is an intense need for new production facilities and higher transmission capacity and investments plans are extensive. The need to reinvest in water and pipelines is also vast.
Receding inflation aided Swedish construction
Declining interest rates and receding inflation had a slight positive effect on the Swedish construction sector during 2024 even though the economy in general continued to be in recession. On the whole the combined building construction volume in Sweden remained more or less the same last year compared to the year before. The most dramatic development was in single homes which continued to diminish considerably from already low levels. Development in other housing construction was basically horizontal. Industrial building construction volumes and investments in private and public premises grew somewhat. In 2025 a broad recovery is expected, with the execption of private premises. Civil engineering investments appear to have increased in 2024 due to a relatively broad upturn in the market with the exception of railroads and post and telecommunication. The forecast for 2025 indicates continued growth.
The Swedish economy
Economic growth is calculated to have landed at a modest 0.5 percent in 2024 despite the falling repo rate and braking inflation. The Swedish Riksbank lowered interest rates five times during the year, from 4.0 to 2.5 at the end of the year. Despite these positive factors household consumption did not increase, which may be due to dwindling disposable income the past two years and a tangible increase in unemployment in 2024. Gross investments contracted, especially in construction. In all probability the Swedish economy hit rock bottom last year and rapidly receding inflation and a more expansive financial policy create conditions for better growth this year. The forecast for GNP in 2025 indicates an increase of more than 2.0 percent driven initially by household consumption.
The Norwegian economy
Norway’s mainland economy developed weakly in 2024 due to continued high interest rates, high prices and low international demand. All in all economic growth is calculated to have landed at 0.7 percent. Gross investments are believed to have declined but household consumption appears to have grown by more than one percent due to receding inflation and a moderate increase in unemployment. Many signs point to an improvement in the Norwegian economy. The forecast for GPN in 2025 indicates an increase of slightly under two percent. Investments are expected to grow somewhat and household consumption recover, although the effect will be weakened by continued rising unemployment.
Splintered construction market in Norway
Total building construction investments declined in Norway during 2024. Only public sector premise construction resisted while housing construction, industrial building construction and private premises contracted. Growth is expected in total building construction volumes as the Norwegian economy begins to recover in 2025. The upturn looks like it will be broad and affect both housing construction and other building construction like industrial, private and public premises. It appears civil engineering construction, which is calculated to have increased somewhat in 2024, will also have a positive development in 2025. Last year there was some recovery in roads and railroads, which represents most of investments in civil engineering. The level is still very low, which is why it is reasonable to expect continued recovery in 2025.
Declining economy affected Finnish construction
The total volume of started-up building construction investments in Finland remained more or less the same in 2024. Developments was splintered among the sectors. Housing construction contracted somewhat due to less apartment building construction. In other building construction industrial and public building construction grew while private premises declined. Recovery is expected on the construction market as the economy once again begins to grow in 2025 and unemployment and interest levels fall. The exception is industrial building construction investments which appear to take a negative turn. Civil engineering is expected to have contracted in 2024 and predicted to turn up slightly in 2025. Road construction developed positively in 2024 and the positive trend will most likely continue in 2025. Railroad investments are believed to have dropped in 2024 and a weak recovery in 2025 is predicted.
The Finnish economy
Finland’s GNP is calculated to have contracted marginally by 0.5 percent in 2024. Diminishing gross investments was the primary factor behind the contracting economy. For the second year in a row household consumption is believed to have only increased slightly, hampered by rising unemployment and higher interest rates. However, inflation receded during last year which should lead to lower interest rates in 2025. This has a substantial impact on household consumption since a majority of loans in Finland are tied to floating interest rates. The forecast for Finnish GPN in 2025 indicates an increase of slightly more than 1.5 percent. In addition to increased consumption, investments look like they are on the rise.
Investments 2020-2025F
Danish paving market grows
In 2024 the Danish paving market was on the same level as in 2023. The Danish government will increase paving maintenance by around 25 percent in 2025 compared to 2024. The infrastructure plan IP35 is now in full force and further civil engineering projects will commence in 2025. Over the past two years municipalities have had the same level of investments but due to higher prices the executed volumes have equaled a reduction of 20 to 25 percent. These levels are expected to remain the same in 2025 since municipalities have not reserved more money for paving. The private construction market is expected to grow somewhat in 2025 after a slight downturn in the past years. All in all the Danish paving market is expected to increase by 10-15 percent in 2025.
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.
Source of content and graphics: Navet Analytics AB