The war in Ukraine causes great uncertainty in the operations of companies and future construction projects, according to recent reports from Rakennusteollisuus RT. RT's member companies estimate the drop in investment demand and the rise in material prices as the most significant factors hindering production.
In practice, all companies in the construction industry see the war in Ukraine as having at least some impact on their business, according to a recent survey of members of Rakennusteollisuus RT.
"The magnitude of the effects depends on the duration of the war and the finding of alternative material channels. New, western delivery channels have been searched for and found for products and materials previously imported from the East. However, the situation is prone to rapid fluctuations if replacement components or materials are not available in time," RT's chief economist Jouni Vihmo focus.
The builders' troubles seem to be clearly more related to the rise in the prices of materials than to the shortage of materials. The increase in costs caused by the war comes on top of the sharp increase in costs that already started last year. At the moment, however, only about one in five companies in the industry is experiencing a very large disadvantage as a result of the war.
"The construction industry was in good shape before the crisis, and at the end of 2021, a lot of housing construction projects were started, especially. This workload carries companies through the summer. Uncertainty is related to future projects", Vihmo reasons.
The threat images are partly darker than during the corona crisis
The companies estimate that the effects of the war will start to bite properly only in the second half of the current year. The situation is expected to remain more difficult than normal next year as well. The background is a growing uncertainty about demand, which is combined with a rapid rise in costs.
Most companies are preparing for a weakening demand. The threat images are partly darker than in the corona crisis, and they have already been seen to come true. The biggest concern is related to investment projects.
"More than 90 percent of the companies consider it at least fairly likely that the customers will transfer their projects. An almost equally large group thinks that it is at least fairly likely that the projects can be cancelled," Jouni Vihmo repeats the results of the member survey.
Another significant threat to companies is the tightening of financing: more than 83 percent of respondents consider it at least fairly likely.
"The construction industry is currently facing a situation where demand is weakening, but costs continue to rise," Vihmo summarizes.
"We can soften the sting of war with domestic means"
In addition to the member survey, the Construction Industry has evaluated the future scenarios of the construction industry. In all of them - whether a quick solution is expected, the prolongation of the war or its expansion - the turning of eyes to the West in material supplies and the increase in construction costs are emphasized.
"Continued cost increases seem likely in all alternative scenarios. Unforeseen cost development makes it very difficult for companies to bid," Vihmo estimates.
"Even though we live in the midst of crisis news, we should not stir up feelings of disaster. It is extremely important that public construction projects are carried out as planned, regardless of everything. We can also soften the bite of the war's effects by taking care of the availability of business financing and housing loans. All legislative projects that lead to a tightening of domestic funding must be put on hold," CEO of RT Aleksi Randell amount.
Making investment decisions becomes more difficult because the availability of materials, prices, the status of current contracts and the development of the economy are uncertain. The storage of materials and products increases. Decentralization of procurement channels, shortening of production chains, and the importance of careful planning and new logistical routes are emphasized.
"In Finland, we have to prepare for a long exceptional period, and then especially the cooperation of clients and builders and the crisis flexibility of contracts will play an important role. Delaying or canceling projects is not in anyone's interest", Aleksi Randell reminds.
"The construction industry has a key role in adapting to the new reality, such as securing security of supply. By building new and especially by repairing the already built environment, we can influence, for example, energy efficiency - the importance of the green transition is only emphasized even more."
The backgrounds of the investigations
Construction industry RT analyzed the effects of the Ukrainian crisis on the construction industry in March–April 2022. The report consisted of scenario work commissioned by RT by an external consultant and a survey directed by RT itself to its member companies.
The goal of the scenario work carried out at the end of March 2022 was to identify the risks and effects on operators in the construction industry. The work was based on 20 expert interviews in different companies that broadly represented RT's industries. The work was carried out by Capful Oy.
RT's member survey was carried out in the first half of April 2022. It was answered by 435 construction companies, which comprehensively represented all branches of the Construction Industry RT. The goal was to map the effects of the war on the companies' current production and business, as well as the threat images related to the crisis.
Check out RT's summary: The effects of the war in Ukraine on the construction industry
Additional information
Jouni Vihmo, Chief Economist
050 520 1636
jouni.vihmo(@)rakennusteollisuus.fi
Aleksi Randell, CEO
0400 500 822
aleksi.randell(@)rakennusteollisuus.fi