Market environment and growth perspectives

In 2020, the global and European pandemic of COVID-19 coronavirus completely changes the forecasts for the construction and development market in Poland and will have a significant long-term impact on the results of enterprises, including Budimex. The assessment of the market situation and market forecasts formulated at the beginning of 2020 may be largely out of date and will be verified after the company is able to assess the impact of coronavirus on the economy and the construction market in Poland.

The economic growth, measured by the increase in gross domestic product, was slightly lower in 2019 than the year earlier (4.0% compared to 5.1% in 2018). At the same time, the general economic situation in the construction industry in 2019 achieved similar values as in 2018. However, it is worth noting that while the percentage of the businesses in construction indicated a strong shortage of qualified staff in 2018, the index stabilised in 2019. The moods have also improved with regard to the costs of materials.

In 2019, the value of construction and assembly production recorded a one-digit increase year-to-year at 6.0% of current prices (compared to 21.3% in the previous year). The decrease in the dynamics was observed in all three segments of construction, in particular in the infrastructure sector, in which the increase in construction and assembly production stood at 4.2% in 2019 (current prices), compared to 23.7% in 2018. The source of weakening in this sector was road construction. A slightly better economic situation compared to infrastructural construction was observed in general construction: an increase of 7.9% in comparison with an increase of 18.7% in 2018.

On the other hand, the structure of the market did not change. Civil engineering structures comprised the largest share in the construction and assembly production: 50% in total construction and assembly production compared to 51% share in 2018. The similar share of non-residential and residential construction was 33% and 17% and reached a comparable value as in 2018.

The dynamics and directions of construction industry growth in Poland are determined by the pace of the execution of large infrastructure projects and, thus, the effectiveness of the use of EU funds. By the end of 2019, over 58 thousand co-financing agreements were signed with the value of PLN 447,2 billion, with the EU funds of PLN 272.0 billion, accounting for approx. 83% of the total funds allocated to Poland as part of cohesion policy.

In 2019, the number of apartments which were released for use, put up for sale or rent increased, reaching the level of 130.9 thousand (increase by 16.6% in comparison with 2018). The good situation is supported by the number of apartments for sale or rent, for which the construction permit was issued (an increase by 4.6% to 167.3 thousand year-to-year), and by the number of apartments for sale or rent, whose construction was commenced (an increase by 7.9% to 142.0 thousand year-to-year).

The cumulation of construction works in the scope of national roads and railway lines, supported by the high value of investments implemented in the area of general construction, resulted in a significant increase in the prices of construction materials, subcontracting services and labour costs in 2017-2018. The application of contractual provisions for the indexation of the contractor’s remuneration, based on the indicators that do not reflect the actual price increases and that limit the increase of the remuneration by a very low level, proved to be insufficient. After lengthy discussions at the beginning of 2019, the main contracting entities in the infrastructural market decided to introduce changes to the indexation methodology for new contracts, in which no general contractor agreement was signed. In 2019, the contractors signed first contracts taking into account new indexation clauses and the assessment of their actual effectiveness will be possible at a more advanced stage of performance of these contracts.

The proposal to allocate the European funds to individual Member States under the Cohesion Policy for the period 2021-2027 provides for a somewhat lower amount for Poland than those granted in the current budgetary perspective. Nevertheless, Poland still remains the largest beneficiary of EU funds and the scale of support for infrastructure projects will most likely make it possible to maintain a significant role of EU funds in the development of the Polish construction sector in the coming years.

The forecasts from the beginning of this year have predicted that the construction market in 2020 will be driven by increasing investment expenditures carried out by public investors in infrastructure. The contracts for the years 2018-2019 on the market of large road and railway investments in 2020 should move into the advanced stage of execution. Thus, the construction and assembly production in the infrastructure segment can record an increase in 2020 compared to 2019. However, the possible impact of the global pandemic of COVID-19 on the market situation should be taken into account, which may result in an update of the above-mentioned forecasts.

Many companies in the sector have begun 2020 with a comfortable order portfolio, which secures companies’ revenues for the next few quarters. At the same time, further increase of the costs of materials and labour is possible. However, the scale of this pressure will be lower than in 2017-2018. However, the situation on the labour market can be changed by the economic situation resulting from COVID-19 pandemic. The shortage of qualified workers in the industry, particularly in the railway sector, is also of great significance. This is additionally influenced by the changes in the regulations on the German labour market, which are to liberalise the employment of foreigners from outside the European Union in Germany. The changes in law can contribute to the drainage of the Polish labour market, i.e. the flow of the employees from the eastern border of Poland, who today significantly feed the Polish civil engineering market.