The construction market outlook reports for Baltic States and Russia - June 2017

7.7.2017

The Baltic States

The World Economic development favours currently the Baltic States. The economic situation in Baltic States’ neighbouring trade partner countries have improved. Baltic States economic sentiment has strengthened and the economic growth will accelerate in 2017 to more than 3 % as the investments are soaring from low level as the access to EU funds is boosting construction sector.

The Baltic States construction sector declined by 7.8 % in 2016 as the postponements in the access to the EU funding obstructed the sector growth. Now the volumes are recovering as civil engineering is receiving funding and the macro-economic situation is favouring non-residential construction. The new market forecast is in line with the previous forecasts. Most significant revisions concern the Latvian market where the recovery in 2017 will be faster than was expected last December.

Residential construction is in upswing. The development in Estonia and Lithuania has been notable and the sector volume development has been very positive in the past couple of years. The residential construction output is already at history-high volumes for instance in Lithuania without acute signs of overheating. The outlook shows slowing growth, as the Lithuanian market is reaching its potential. Latvian market is starting to grow from low volumes.

Non-residential construction is starting to recover as the global economic development is supporting the segment. Consumer situation has enhanced as the real wage growth has been significant. Commercial building construction segment has large projects ongoing. Latvian situation is still worrying as the building permit volumes are historically low. Non-residential segment in Estonia has remained solid.

Civil engineering boosts construction sector segment. Baltic States civil engineering markets reached their market bottom in 2016 as the postponements in acquiring of EU funding reduced the market activity. The gradual recovery will begin in all the three countries as there is large number of projects started. The sector growth is broad based and all the subsectors of civil engineering are taking off.

Russian construction markets

Russian economy has survived from recession and is gradually turning towards growth tracks. The economic sentiment in Russia has enhanced quite well since the beginning of 2016. Household situation has improved and the industrial output and investments show modest recovery. Rouble appreciation has supported consumer situation, on contrary, it has weakened the export industry competitiveness and created risks for federal budget. Economy will grow already in 2017 but Russia will still face several years of modest growth rates.

Construction market volume was some 105 billion euros in total in 2016. The sector recession has lasted since 2014 and will further decline in 2017 even though the overall economy is growing. During the four consecutive years of decreasing construction volumes, the sector is estimated to lose nearly 15 % of its value. State support for housing loan market has supported housing construction, which will start gradual growth in 2017. Non-residential construction is at turning point in 2017 as the market decline ends.