The future of construction in Europe

Falling inflation, EU funding and geopolitical challenges are set to reshape the sector in the coming years

The European construction sector is in a delicate phase of transition. Following the post-pandemic rebound of 2021-2022, fuelled by major financial stimulus measures and growing demand, the subsequent years have seen a sharp slowdown.

Inflation at its highest level in decades, rising interest rates and ongoing geopolitical uncertainty have curbed both public and private investment.

As a result, leading industry observers such as Euroconstruct and EECFA see a recovery ahead, but one that is uneven and clouded by uncertainty.

The 99th Euroconstruct Conference

According to the 99th Euroconstruct survey presented in Warsaw last June, construction activity in the 19 countries traditionally covered by the network (Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the UK, Czech Republic, Hungary, Poland and Slovakia) fell by 2.1% in 2024, 0.3 percentage points lower than the forecast released at the 98th conference in December 2024.

The latest projections, as described by Mariusz Sochacki in his report published in Euroconstruct, point to a reversal of this negative trend and a return to growth beginning in 2025.

Growth forecasts to 2027

Output in the Euroconstruct area is expected to increase by 0.3% in 2025, followed by growth of around 2% in 2026 and 2027. By 2027, the total value of the construction market in the 19 Euroconstruct countries will be 1.4% below the 2021 peak, but 3.5% higher than in 2024.

Poland is projected to see the strongest cumulative growth in 2025-2027, with double-digit increases in both new construction and renovation work. In Ireland, cumulative growth by 2027 will be driven mainly by an increase in demand for new construction.

Residential in difficulty, civil construction decelerating

All three major construction market segments in EC-19 (residential, non-residential and civil engineering) are expected to grow in real terms between 2025 and 2027, but the growth outlook remains modest with annual rates not exceeding 2-3%. This applies to both building construction and civil engineering, as well as the new and renovation segments.

The report also forecasts that the downward trend in residential construction will continue at least through 2025. However, market growth is expected to resume in 2026-2027, mainly in new housing construction.

Sluggish domestic demand and weak public sector finances are likely to continue to hinder non-residential construction growth in most European countries between 2025 and 2027.

The rate of growth in total civil engineering construction is also expected to remain low in the coming years. Growth in total construction output in this period will amount to 4.6%, driven primarily by residential building construction.

Performance across countries

Cumulative double-digit growth between 2025 and 2027 is expected in Poland (16.5%), Sweden (15.8%), Ireland (15.2%), Spain (10.5%) and the UK (10.3%), while in France growth will amount to 3.7%.

A significant contraction in the construction market is forecast in Italy (-5.8%), while the situation in Germany, Austria and Belgium is expected to remain stagnant.

The EECFA report on Eastern and Southeastern Europe

The outlook presented by EECFA (Eastern European Construction Forecasting Association) is equally mixed. The picture in Eastern and Southeast Europe is varied and uneven.

In Bulgaria, total construction output is expected to grow by an average of 3% in 2025-2027, with stronger growth in the middle of the period. Residential construction will be the weakest subsector, while non-residential construction and civil engineering are expected to perform better. Although Bulgaria’s economy is set to grow more slowly than previously expected, it stands to benefit from full Schengen area membership effective from 1 January 2025 and from euro adoption scheduled for 2026.

In Croatia, construction activity remains vibrant due to the combination of continuing transitioning-economy catch-up growth and large inflows of EU money. However, both drivers are beginning to diminish and this will affect all construction segments, some more strongly and more rapidly than others.

Romania continues to show a positive but more cautious macroeconomic outlook amid political instability and fiscal uncertainty that have done little to improve growth opportunities. At the same time, the country has the largest government deficit in the EU, which will dampen public investment capabilities. This could negatively impact civil engineering, which in 2024 had offset declines in other construction segments. The outlook for total construction remains negative in 2025 and 2026 in real terms. Nonetheless, falling inflation and interest rates, combined with strong employment indicators, could boost private demand.

In 2025 Serbia’s construction sector is making new gains in building construction, while civil engineering has entered a period of consolidation after the strong expansion of 2023 and 2024. Building construction is supported by both public and private investment, boosted by preparations for Expo 2027 in Belgrade. Non-residential construction is the main beneficiary of this event, particularly commercial, office and hotel segments, while residential construction is maintaining historically high volumes. Some delays are being seen in civil engineering, but overall performance remains strong.

Total construction output in Slovenia is expected to decline from the historic high of €5.5 billion reached in 2023. A contraction is expected in 2024 and 2025, although activity should remain above €5 billion annually. The sector is expected to return to growth in 2026 and 2027, mostly on the back of healthy growth in residential construction buoyed by lower mortgage rates. By contrast, civil engineering is expected to see a sharp decline in 2024-2025 as major projects such as the new railway connection to the port of Koper are completed.

Russia, Turkey and Ukraine: divergent paths

As for the situation in Eastern Europe, Russia, Türkiye and Ukraine show markedly different trajectories.

According to Andrey Vakulenko of Macon, EECFA’s Russian member institute, the construction sector in Russia will remain under pressure due to a range of macroeconomic factors. Tight monetary policy and reduced mortgage availability are expected to slow housing construction. At the same time, the high cost of project financing, the general cooling of the economy, reduced consumption and weak business activity are likely to shrink the volume of investment in non-residential construction.

In Türkiye, notes EECFA researcher Prof. Ali Türel, positive real growth in housing prices relative to construction costs is stimulating new supply, while loss of purchasing power due to inflation is leading to an increase of home sales through equity financing as mortgage credits are not affordable for most households. Rebuilding the 870,000 homes damaged in the 2023 earthquake requires around €100 billion in investment, expenditures that have significantly contributed to the country’s large national deficits in recent years.

Despite the ongoing war, Ukraine’s construction industry is showing signs of recovery this year. According to Sergii Zapototskyi of Uvecon, EECFA’s Ukrainian member, the World Bank estimates that reconstruction would require US $486 billion. Bureaucratic barriers, labour shortages, scarce and costly building materials, and severe logistical difficulties exacerbated by the war remain the biggest obstacles to reconstruction.