The construction market in Serbia will record a decline this year and next year

The construction market in Serbia will record a decline this year and next year, and the greatest danger for Serbian builders is the loss of private investments, according to the predictions of the EECFA (Eastern European Construction Forecasting Association). 

“It is noticeable that foreign direct investments in construction are significantly decreasing during this year, primarily due to the caution of investors to embark on any long-term projects in such unstable circumstances, and especially in a situation where Serbia’s position in the economic conflict between the EU and Russia is undefined and quite uncertain with the further flare-up of the conflict,” says the report carried by the Business and Finance portal.

Private investments by domestic investors are also on the decline, due to economic uncertainty, rising interest rates and unpredictable costs.

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Unlike Slovenia and Croatia, which, despite the extremely unstable global circumstances, will manage to achieve an increase in construction activity of around 4 percent this year and the next,  Serbia is predicted to record a decline in the construction sector by 6.7 percent in 2022 and 2023. 

On the other hand, public investments in construction are not decreasing , despite huge economic uncertainties. That segment of the market will certainly be the biggest support for the construction industry this year and next.

“On the other hand, price growth could negatively affect future contracts and the volume of infrastructure projects, if inflation continues to rise with a further decline in economic activity,” it said.

This year, construction activities fell by 7.6 percent in the second quarter, and GDP by 6.7 percent year-on-year.

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Two key reasons for the poor results are, as stated in the report of the Ministry of Finance, a huge increase in the price of construction materials and a significantly lower volume of private investments.

The export of construction services also fell by more than a third, as did the number of employees in all segments, except for design bureaus.

Therefore, it is now certain that the results of the construction industry will be far below the originally projected growth of 7.4 percent, which, according to forecasts, together with the worse results of agriculture, will mostly affect the weaker growth of the gross domestic product than expected, the Business and Finance portal reports.

Serbia is not directly involved in the economic war between the EU and Russia, but the rise in the prices of construction materials and energy, as well as political tensions in relations between Serbia and the EU, will inevitably shake the local construction market and its prospects, especially when it comes to new private investments, he says. in the report.

Even worse than high prices are unstable prices, and the constant increase in the cost of raw materials is already causing problems when contracting new jobs in Serbia, it is estimated. 

Construction companies update their contracts to adjust costs to market developments, especially in projects with long deadlines.

In 2021, construction costs increased by 8.8 percent compared to 2020, with construction materials prices experiencing double-digit growth during the second half of the year.

That extremely negative trend accelerated further in 2022, so the prices of raw materials rose by 20 to 50 percent and continue to rise.

There are no cancellations of contracted projects on the Serbian market yet, it is stated, but the full consequences of the current earthquakes will only be seen at the end of the year.

In Serbia, housing construction has been “relentless” in recent years, because in 2022 it entered the eighth year of consecutive growth.

That part of the construction industry was its leading segment, as prices rose faster than costs, interest rates were at historic lows, and demand seemed endless.

“This kind of environment will certainly change, so housing will also have to adapt.” The fact that Serbia has a vibrant and growing economy rules out a sharp decline in the short term, but the medium and long-term prospects have become much weaker,” the report predicts.

After the moves of the US Federal Reserve, the National Bank of Serbia also started to tighten its monetary policy by increasing interest rates, which will greatly change the financial conditions in the coming period.

The authors estimate that in Serbia there has been a noticeable and pronounced increase in non-residential construction in recent years, although some parts of the market have slowed down after a period of dizzying growth.

Low-rise construction also recorded record levels in 2021, and EECFA analysts estimate that this year will most likely end similarly.

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