The construction sector: coming back, but still under pressure

After having enjoyed an incredible expansion period over the previous decade, the construction sector found itself hard hit by the Covid-19 crisis in 2020. 2021 promises to be brighter for the economy in general, but what about the construction sector? Discover our forecasts.

According to an analysis of the sector conducted by the Construction Confederation, the economic activity of the construction sector in Belgium declined by about 5% last year overall. For 2021, a recovery is in the cards but one whose scope will depend on the rhythm of a number of major Belgian construction projects, such as the new canal lock at Terneuzen, the Oosterweel link under the Scheldt river in Antwerp, the RER Regional Express Network and the tram system of Liège. The Construction Confederation is also counting on an increase in public investments.

Leaving aside these major projects, the companies active in the construction sector clearly remain under pressure, with a level of activity that is below what we were seeing prior to the crisis. Another factor is the increase in prices for raw materials, which is causing difficulties for the companies.

Here are the most important trends for the construction sector in 2021:

Considering the effects of the lockdown and the evolutions observed with regard to building permits, activities linked to new housing production declined by 8% in 2020. We anticipate that they will largely recover in 2021.
The construction of new non-residential buildings dropped by 10% in 2020 and will probably not progress in 2021, due to a sharp reduction in investments by companies.
Renovation works suffered less from the health crisis, in part because they are usually carried by their own dynamic linked to the constant expansion of the potential market. Renovation works performed by companies from the construction sector declined by 1.3% in 2020 and should advance by 5% in 2021.

In light of these evolutions and forecasts, the conditions for building or renovating a residence are particularly favourable:

  • The disposable income of households increased last year.
  • Interest rates for mortgage loans have never been so low.
  • The generalised reduction of VAT to 6% for demolitions-reconstructions which was introduced at the start of this year will continue to apply through 2022.
Since the beginning of 2021, the prices of certain construction materials have increased, for various reasons that all have an international dimension, related to the tensions that have developed on the raw materials market. We have noted a price increase of 30% for steel, wood products and the polyurethane insulations. These price increases are worrying the companies, which fear that this situation will harm the recovery.
The order books of the construction companies are gradually filling up again. At the start of the year, half of all construction companies were still facing order books ranging from virtually empty to below normal. The situation is improving today, but 25% of construction companies are still in this situation.

The successive lockdown periods have weighed heavily on the companies. Euler Hermes believes that one company in five in Belgium is at risk of experiencing a cash-flow crisis in 2021. Not having been able to entirely offset the losses suffered during the months of lockdown, 31% of construction companies are encountering liquidity problems and will have more and more difficulties paying their short-term invoices, dragging the suppliers and the entire supply chain down with them.

While a large number of bankruptcies were avoided in 2020 thanks to the support measures introduced by the government authorities, Euler Hermes expects a rise in bankruptcies in the second half of 2021.

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