European construction sector set to return to growth in 2025

Order books for EU contractors are slowly improving. Seasonally Adjusted (SA); the latest data point December 2024 (Photo: ING report)

While the growth is described as “marginal,” the report highlights positive indicators, such as rising house prices and stabilising construction volumes, as signs of improvement.

House prices within the EU started to increase again in 2024 after a year of decline, reaching record levels by the third quarter. The report notes this trend is encouraging for new developments, as the gap between the cost of newly built and existing homes is narrowing.

However, challenges persist in countries like Germany and Spain, where high costs have made newly built homes less competitive. In contrast, the Netherlands stands out, with new house prices becoming increasingly attractive to buyers, enabling developers to cover rising material costs.

Labour shortages remain a pressing issue, with a quarter of EU construction firms reporting worker shortages in December 2024. While this is down from 32% the previous year, the report attributes the problem to an ageing workforce and highlights the need for industrialisation and digitalisation to drive efficiency.

Infrastructure is identified as a key driver of growth, with investments in digital infrastructure, power grids, waterworks, and the energy transition continuing to support the sector. Countries like Spain and Poland are benefiting from EU Recovery Funds, with Spain advancing delayed projects and Poland preparing to launch railway and road developments after regulatory barriers were removed. Engineering activities, a leading indicator of infrastructure growth, are also on the rise, suggesting further progress in 2025 and 2026.

Regionally, the outlook varies. Germany’s construction sector faces stagnation, with no growth expected for the fifth consecutive year, while France is forecasted to see a 1% decline in output. By contrast, countries like the Netherlands and Turkey show stronger growth potential, driven by improving demand and opportunities for price increases.

While challenges such as labour shortages and subdued demand persist, the ING report suggests the sector has reached its lowest point and is positioned for slow but steady recovery.

Maurice van Sante, senior economist construction and team lead sectors at ING, says, “The sector is getting less volatile. In the past, you saw enormous hurdles but it looks like that is diminishing. However, that is not the case in all the sub sectors for for instance, in residential, we have seen an enormous decline. Maybe 20% in some countries for the new residential construction. However, there are many pillars that help the sector.

“We have seen some decline in the last months of 2024. So don’t forget about that. However, now we see the first green shootings of growth.”

Van Sante adds that order books are still negative, but it looks like they are bottoming out. “And at the beginning of the construction value chain, you see positive signs, such as in the production of building materials and concrete, bricks and cement. These volumes have decreased by approximately 20% and that is slowly picking up again.”

Read the full report here.