Rapidly rising prices continue to have a negative impact on the construction industry

LATVIA – Latvian Construction Industry

According to Ministry of the Economy Service, production in the construction industry has declined for the fifth consecutive quarter. In Q3 2022, construction output fell by 13.6% compared to the corresponding quarter in 2021. The decline is also for the 3rd quarter in total, the annual construction output is 12.5% lower than in the 3rd quarter of 2021. It can be seen that rising construction costs are having an increasingly negative effect on the sector’s performance. Rising prices in the industry are slowing down existing construction projects and launching new projects.

Rapidly rising prices continue to have a negative impact on the construction industry
Figure, data source www.em.gov.lv
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In Q3 2022, construction output declined in all construction subgroups

The rate of decline is fairly even across all subgroups, with the largest decline observed in building construction.

The volume of building construction in Q3 2022 was 14.2% lower than in the previous year’s Q3. The decrease was due to a decline in non-residential construction. The volume of construction of buildings in Q3 2022 was 14.2% lower than in the 3rd quarter of the previous year. The decrease was due to a decline in non-residential construction.

Engineering construction decreased by 12.2% in Q3 2022 compared to Q3 2021. Activity declined in all areas of civil engineering.

The volume of specialised construction work decreased by 13.3% in this period compared to Q3 2021. The decline is observed in all areas of the sub-sector, with particularly sharp declines in construction completions and in the demolition and site preparation segments.

The decreasing construction activity is also evidenced by the data on building permits. The number of building permits issued in Q3 2022 reached 1,303 building permits, which is 3.6% less than in the corresponding period of 2021. This was due to a decrease in construction permits issued for commercial premises and other non-residential premises. On the other hand, the expected floor area decreased significantly faster during this period, by 56.2%.

The construction industry will remain in a challenging situation in the coming months, as current price increases will continue to affect construction costs, and the geopolitical situation and uncertainty will affect private investment. In this situation, public investments – EU fund investments and Recovery and Resilience Mechanism projects will play a major role in the growth of the industry.

Estimate prepared by the Ministry of Economy:
Janis Ušpelis, Economist of the Analytical Service, Ministry of Finance

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