Construction has slowed down strongly for more than a year. According to business surveys, construction is at the bottom of the economic cycle. However, the greatest uncertainty and fall seem to be behind us. Starts and permits have dropped to a level where the rise has started on average in statistical history.
However, the ship of construction is turning slowly. Production will continue to decline for a long time. The timing and slope of the new ascent depend on how tightly different factors hold the anchor at the bottom.
The declining business cycle can be seen in different ways in different types of construction. Housing construction is holding back more strongly than expected. The decline of production below a sustainable level will be reflected in the dynamics of the economy, especially next year. However, there are no ingredients for a larger negative spiral in housing prices.
The premises will move to support new construction. The green transition and disruptions in global supply chains increase investments in Finland. During repair, the sluggish growth becomes stronger. In terms of public funding, the situation of infrastructure remains weak. However, the view brightens. All construction is supported by declining costs and the economy turning to growth already at the end of the year.
During the past boom period, construction costs and interest rates were low, and the whole of Finland had time to build exceptionally cheaply and in large quantities for half a decade. In Finland, we got used to the fact that the construction industry runs its course, and there is no need to worry about the big industry any more. Vice versa. Funding for construction and housing was tightened. The new construction law was poorly prepared and harmful to the industry. In fact, construction is a difficult sport. Projects are expensive and long, and involve a lot of gamblers and blocks.
In the future, everything will be different. The time of abundance and steady growth is over. Now the decisions made during good weather are put to the test. The threat of recession, faster-than-expected inflation and rising interest rates hover around construction in 2023. If the turbulence in the financial sector that we have seen now continues to accelerate, the outlook for construction with debt money may darken even more. Deglobalization and intensifying competition for materials will cause disruptions to production chains in the future. Disturbances in demand will also be wedged in the side by disruptions in supply in the future. Unpredictability is increasing in politics and the economy.
The agenda should include the green transition and the development of human life. However, the ongoing cost-of-living crisis and growing tensions will hamper development all over the world for at least a few years.
At the same time, construction is under unprecedented pressure. Construction has rightly been understood as part of the economy and well-being for a long time. In the future, the role of construction must be understood even more as a part of a sustainable future and a restorative economy. If we want to speed up the green transition, human development and growth in Finland, we must take better care of the construction environment in the future.
The text has been published in RT's spring 2023 economic review. See the business cycle review and related materials here.
Jouni Vihmo
Chief Economist
jouni.vihmo@rt.fi + 358 50 520 1636Confederation of Finnish Construction Industries (CFCI)
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