VEIDEKKE ASA 21 March 2024 | Questions? |
Kristoffer Eide Hoen | Head of Business Development and Analysis | kristoffer.eide.hoen@veidekke.no |
Anders Wettre | Analyst | anders.wettre@veidekke.no |
About Veidekke's market report
- Veidekke prepares figures for the Scandinavian markets based on statistics published by Statistics Norway (SSB), Statistics Sweden (SCB) and Statistics Denmark (DST). Other information sources include major construction clients like the Swedish Transport Administration and the Norwegian Public Roads Administration, as well as central and local government budgets.
- Macroeconomic forecasts stem from reputable forecasting institutions like the National Institute of Economic Research (Sweden), Statistics Norway and central banks.
- Veidekke calculates best-estimate forecasts of production levels using a forecasting model that incorporates national interest rate levels and municipal-level data on registered building starts, population growth and unemployment. Sources used for infrastructure forecasting include publicly available information on upcoming major public transport projects.
- Veidekke's contractor activity assessments and construction cost indices are forecasts based on current knowledge. Forecasts may be revised in the event of unforeseen changes in geopolitical circumstances, financial markets or commodity prices.
2
Our focus: the Scandinavian contracting markets
Not included:
The contracting markets in 2023
- Detached houses and holiday homes
- Residential refurbishment, "off-the-books work" and household DIY
Production of buildings* and infrastructure in NOK billion
Total Scandinavian market 2023: ~ NOK 1 050 billion
Private yrkesbygg | |||
NOK 144 milliarder | |||
Commercial buildings | |||
NOK 280 billion | |||
Anlegg | Apartments | måhus | Offentlige yrkesbygg |
Leiligheter og | |||
Civil engineering | and small houses | Public buildings | |
380 billion | 295 billion | NOK 95 billion | |
NOK 234 milliarder | NOK 198 milliarder | NOK 79 milliarder |
* Residential units: All new-builds, rebuilds and additions, excluding detached houses and holiday homes.
Residential units and commercial buildings: Including an estimate of the transparent ROT (rehabilitation, conversion, and extension) market for project sizes >NOK 20 million.
The civil engineering market: New-builds only.
3Source: Veidekke's market data
Contracting markets
Forecasts 2024-2025
Comment
- Following strong growth in 2022, production slowed in 2023, falling by 5% in value terms in Sweden and Denmark. Norway, however, maintained a high level of activity last year.
- We expect 2024 to be marked by a noticeable decline in activity in all three countries, reflecting the previously observed low number of building starts in 2023.
- The outlook for 2025 remains less certain, and rising activity levels are dependent on a relatively rapid increase in building starts. This scenario cannot be ruled out, and we will adjust our forecasts in the next report if it materialises.
- The overall figures for each country evidence a clear division between construction and infrastructure. The decline in total activity relates almost exclusively to construction sectors, and residential construction in particular.
- Our forecasts are more or less the same as in our autumn 2023 report, reflecting the fact that the markets are developing reasonably predictably and as expected.
Production in the Scandinavian contracting markets
Percentage change since previous year, current prices
2022 | 2023 | 2024 | 2025 | ||
Norway | 11% | 3% (3%) | -7% | (-5%) | -4% (-3%) |
Sweden | 22% | -5% (-6%) | -11% | (-8%) | -1% (-1%) |
Denmark | 11% | -5% (-12%) | -8% | (-5%) | -1%(3%) |
Scandinavia | 16% | -2% (-6%) | -9% | (-7%) | -2% (-1%) |
Scandinavia, | 1,070 | 1,050 | 950 | 930 | |
NOK billion | |||||
Autumn 2023 forecasts in brackets.
4Sources: Veidekke's market data, Statistics Norway, Statistics Sweden, Statistics Denmark
Agenda
01 Introduction
- Economic environment
- The contracting markets
- Construction costs
- Summary
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01 Introduction
Less geopolitical unrest - for the time being
Geopolitical turmoil and risk premium in European corporate debt
- The geopolitical risk indicator (GPR) increased after the terrorist attack on Israel in October and the subsequent invasion of Gaza, but has since fallen.
-
The premium on European corporate bonds, which reflects the financial markets' confidence in
European businesses, has dropped by 30-40 basis points over the past three months. The premium is now below the historical average for the period since 2010. - We interpret the development in these indicators as positive, not least in terms of reduced financing costs for customers in both the private and municipal sectors.
- It is worth noting that indicators only provide a picture of the current situation, and do not forecast the future. New and unforeseen situations may increase the risk of both geopolitical conflicts and uncertainty in financial markets.
350
300
250
200
150
100
50
0
Geopolitical risk (GPR index)
Risk premium on European corporate bonds
Average 2010-present
Jan-24
Nov-23
Sep-23
Jul-23
May-23
Mar-23
Jan-23
Nov-22
Sep-22
Jul-22
May-22
Mar-22
Jan-22
Nov-21
Sep-21
Jul-21
May-21
Mar-21
Jan-21
Nov-20
Sep-20
Jul-20
May-20
Mar-20
Jan-20
7Sources: Economic Policy Uncertainty, Geopolitical Risks (GPR) Index, Macrobond Euro Area Corpororate Benchmark BBB, premium on five-year German government bonds
02
Economic environment
- Growth and the labour market
- Inflation and interest rates
- Demographic factors
Rising market interest rates?
Market interest rates have risen again, but risk premiums are stable
10-year government bonds | |
• Market interest rates have generally developed | 6 |
positively since the autumn 2023 report, showing a clear decline.
5
- In most markets long-term bond yields are somewhat
lower than at their peak in September/October 2023. | 4 |
- The risk premium on European corporate bonds has
also shrunk considerably, indicating a positive | 3 |
improvement in financial market confidence in European companies.
2
1
0
-1
*
Denmark | Norway | Sweden | Germany | USA | Risk premium** | ||||
* Data for March 2024 is from 17 March. | ||
9 | Source: Macrobond | ** Difference between European corporate bonds (BBB) and German government bonds (five-year) |
Soft landing for the economy thus far
Economic growth in Scandinavia and selected countries
GDP growth
- Global economic growth is expected to remain moderate, which will have a negative impact on Scandinavian export markets.
- Leading GDP forecasts indicate an economic downturn in the Scandinavian countries in 2024 and 2025, leading to increased unemployment, as recently observed.
- The Norwegian economy is being fuelled by high oil and gas prices and strong central government stimuli via the national budget.
- In Norway and Sweden in particular, there is a clear division of the economy, with some manufacturing and energy- related sectors doing very well while the construction industry, for example, is performing poorly.
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3
2
1
0
-1
3,8 | 2022 | 2023 | 2024 | 2025 | ||||||||
3,5 | ||||||||||||
2,8 | 2,9 | 2,7 | 2,4 | |||||||||
1,3 | 1,8 | 1,4 | 1,5 | 1,6 | 1,8 | |||||||
0,8 | 1,0 | 0,9 | 1,0 | 1,1 | ||||||||
0,3 | 0,5 |
-0,6 | ||||
N O R W A Y | S W E D E N | D E N M A R K | E U RO Z O N E | U S A |
10Sources: Norges Bank, National Institute of Economic Research (Sweden), Danmarks Nationalbank, ECB, FED
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Disclaimer
Veidekke ASA published this content on 20 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 March 2024 06:06:07 UTC.
