Europe’s construction sector faces a period of weak growth
At a Glance
The European construction sector is expected to experience subdued growth, primarily driven by infrastructure investment and a gradual recovery in Germany, despite headwinds from rising financing costs and geopolitical uncertainties. Per the full note from ing-think, EU construction output is forecasted to grow only 0.5% in 2026, following a 1.8% decline in 2024 and modest growth of 2.3% in 2025. The desk believes this outlook highlights a divergence between overall EU GDP growth and construction output, signaling caution for traders in affected EUR pairs, particularly given the lack of high-impact events in the immediate future.
Key Takeaways
- 01EU construction output growth is expected to be only 0.5% in 2026, following recent declines.
- 02Higher financing costs and geopolitical uncertainties are major headwinds for the construction sector.
- 03Housing permits have stabilized, indicating a potential delay in the residential recovery.
- 04Divergence exists between overall EU GDP growth and construction sector performance.
Full Analysis
What the desk is arguing
The European construction sector is poised for weak growth. Recent stability in housing permits suggests a residential recovery might be delayed, with construction volumes expected to rise only marginally in the coming years. Per the full note from ing-think, growth rates are forecasted to be constrained due to elevated financing costs and broader economic uncertainties.
Supporting the desk's view, construction output in the EU is projected to grow by just 0.5% in 2026 after a notable decline in 2024, underlining significant lagging performance compared to GDP growth. Additionally, as stated, "the EU construction confidence indicator had stopped improving and had fallen below its level a year earlier," reflecting a lack of momentum that traders should be cognizant of.
Where it sits in our coverage
Our internal consensus target places EUR/USD at 1.075, with a range of 1.04 to 1.12. Specific targets from firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan while diverging from bofa, which presents a more bearish outlook. Currently, we sit near the upper bound of the prevailing consensus, suggesting traders should be vigilant about the potential for a downward adjustment.
How other firms see it
Firms like jpmorgan and others appear aligned with a cautious growth outlook for Europe’s construction sector, whereas bofa takes a more pessimistic stance, leaning towards weaker performance.
The analysis presented ties closely to the broader EUR/USD landscape, where traders should be alert to shifts in sentiment around construction and infrastructure investment metrics, given their potential impact on the euro's performance against the dollar.
Market Implications
Traders should monitor EUR/USD as it may react sensitively to shifts in construction sector sentiment. The expected calm in upcoming economic data releases creates an environment where even minor updates could trigger volatility.
From the original
Articles Europe’s construction sector faces a period of weak growth Published 14:00 Real estate Manufacturing, Construction and Retail Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Europe’s construction volumes will keep growing but remain sub
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German industrial production defied worst-case fears in April, but stagnation persists
Following the recent report on German industrial production, the desk interprets this as an indication of continued stagnation despite a modest uptick in activity. April saw a 0.4% month-on-month increase in industrial production, yet this remains insufficient to offset a persistently weak growth rate, with levels still 12% below pre-pandemic benchmarks. Per the full note [source], while construction activity positively contributed with a 2.4% rise, broader economic concerns fueled by geopolitical tensions and high energy costs weigh heavily on the outlook. As the macroeconomic landscape remains challenging, traders should remain cautious about sustainable rebounds in the Eurozone economy, particularly regarding EUR sentiment amidst shifting expectations.