After a 3.5% contraction last year, Polish construction output is forecast to level off in 2021, but then to rebound by more than 7% in 2022. Apart from warehousing and transport-related building projects, clouds on the horizon are coming for commercial construction, as investments in office buildings remain subdued. Civil engineering is set to grow, but the current dispute between the EU and Poland over rule of law issues is putting a disbursement of EUR 36 billion from the Next Generation EU fund at risk. That said, the outlook for residential construction is more positive, as demand continues to exceed supply.
GlobalData expects the Polish construction industry to grow by 1.2% in 2021, as the country has successfully managed the second wave and reopened business activity in the second quarter of 2021. The second wave during January-March 2021 disrupted the construction industry severely in the first quarter of 2021. However, in the second quarter of the year, the construction industry recovered, supported by the reopening of the economy. According to Eurostat, the construction industry’s value-added grew by 3.5% year-on-year in the second quarter of 2021, preceded by Y-o-Y declines of 13% in Q1 2021 and 5.3% in Q4 2020. Analysts expect the construction industry to continue its recovery in the coming quarters, on the back of declining Covid-19 cases and the government’s investment in transport infrastructure with an aim to combat the economic impact. Moreover, the European Union’s Recovery and Resilience Facility (RRF) should also support the industry’s growth over the forecast period.
Construction materials costs have risen by an average of 22% in the last 12 months and increasing energy costs are only going to contribute to this trend. Combined with logistics challenges, especially in haulage and distribution, and emerging issues regarding labour availability, this is creating a potential inflationary storm on the horizon. Recovering new orders are another source of inflationary risk, with the pressure amongst contractors to win work easing and competitiveness levels reducing. The construction sector is also already highly aware of the inflation trends at hand. With so many cost drivers in place at the moment, inflation has been generally acknowledged and consequently, the supply chain is far from being shy about making allowances for it, Arcadis cautions.
While profit margins of construction businesses remained stable in 2020 and H1 of 2021, they are expected to deteriorate in the coming months, due to higher prices for construction materials and increasing labour costs. Payments in the Polish construction industry take 83 days on average. Payment behaviour has been rather bad over the past two years, and overdue payments of up to 30 days are common, Atradius underlines. The sector is prone to payment delays, as there are many disputes related to the quality and scope of work. Payment delays suffered by a company are usually passed on to peers along the value chain.
In H1 of 2021, the number of construction insolvencies increased sharply year-on-year, mainly due to a high rate of simplified out-of-court restructuring proceedings. In the coming six months, business failures are expected to increase further, as government support schemes expire, pandemic-related aid has to be repaid, and the liquidity of businesses remains strained by higher costs for materials and wages. Most vulnerable are companies that have a low level of diversification in their work portfolio, and that are focused on infrastructure and/or office/hotel buildings.