Veidekke: downturn expected in the Scandinavian construction markets

30 Mar 2023 07:00 CEST

Veidekke anticipates a reversal of last year's growth in the Scandinavian
construction markets. Lower demand resulting from higher interest rates and
inflation is expected to hit the apartments segment hardest, with the most
severe impact being felt in Sweden. However, a continuing positive trend can be
observed in parts of the commercial buildings segment.

"Our forecasts indicate a 6% decline in the Scandinavian construction markets
this year, i.e. a reversal of last year's growth. The greatest drop is expected
in Sweden, which also recorded the highest growth figures last year," says
Veidekke Head of Analysis Kristoffer Eide Hoen.

While the forecasts for 2023 are in line with last autumn's market update,
Veidekke has cut its expectations for 2024.

The most important factor behind the decline is the construction of fewer
apartments than in preceding years. Reduced demand for residential units is
linked to higher interest expenses and the negative impact of inflation on
household purchasing power. Last autumn's weaker housing market may be
attributable to temporary effects, including record sales in the preceding
period, falling secondhand residential prices throughout most of 2022 and
general economic uncertainty among households. At the end of Q1 2023, there are
signs that secondhand residential prices are stabilising. In addition, the
labour market appears stable and domestic migration to urban centres is
increasing.

"It is therefore reasonable to expect somewhat greater stability in the market
for new residential units following last autumn's severe drop. However, the
market is vulnerable to unforeseen developments and interest rate rises above
current expectations," says Hoen.

In contrast to the residential sector, growth in demand for commercial buildings
exceeded expectations throughout 2022, with particularly positive trends being
observed in the industrial and logistics segments.

"Rising interest rates and a generally weaker economic outlook indicate that the
most likely scenario is a decline from last year's record levels. However, two
potential wild cards are depreciation of the Norwegian and Swedish currencies -
which strengthens the competitiveness of many businesses - and high capacity
utilisation in many industries. Like last year, business investment levels may
well surprise us positively," says Kristoffer Eide Hoen.

As regards public-sector demand, there are differences between central
government and municipalities. Just like businesses, municipalities are exposed
to the effects of higher interest rates and financing costs. An additional
factor in Norway is controversy about the merger of municipalities, which has
impacted investment levels over the past three to four years. In the absence of
increased central government allocations, the municipal sector is not expected
to grow significantly in the next few years, despite its responsibility for key
buidling segments like schools and care homes. However, the civil engineering
market - in which central government and energy companies account for the
majority of projects and financing - remains strong in all of the Scandinavian
countries. Activity levels are expected to remain high in the transport
infrastructure sector, and the energy, water supply and sewerage segments are
growing and will account for an increasing proportion of civil engineering
projects going forward.

For more information, please contact:

Kristoffer Eide Hoen, Head of Business Development and Analysis, Veidekke ASA,
+47 976 75 434, Kristoffer.Eide.Hoen@veidekke.no.

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Veidekke is one of Scandinavia's largest contractors. In addition to undertaking
all types of building and civil engineering assignments, the group also
maintains roads and produces asphalt and aggregates. Veidekke emphasises
stakeholder involvement and local experience. Its annual turnover is
approximately NOK 39 billion, and half of its 8,000 employees own shares in the
company. Veidekke is listed on the Oslo Stock Exchange, and has posted a profit
every year since its inception in 1936.

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586590_Presentation_market_update_Spring_2023.pdf