Baltic growth

Baltic states saw an average construction growth rate of 10.8% between 2011 and 2014, according to research company PMR, whose latest report is called Construction Sector in Baltic States 2015: Estonia, Latvia, Lithuania. Development forecasts for 2015 to 2021.

With an average construction growth rate of 10.8% between 2011 and 2014, Lithuania’s construction output performed slightly less well than its Estonian counterpart – where an average annual growth rate of 11.4% was recorded – but marginally better than Latvia, where the construction sector expanded by 10.5% year on year during the period.

However, Lithuanian construction output rose by 16.7% in 2014, the third most substantial increase among EU countries. This healthy performance recorded in the country in 2014 followed a robust increase of 11.3% achieved a year before.

In the last few years, the Latvian construction industry has also continued to improve, said PMR, though at a more moderate pace than in 2011/2012. Last year, Latvian construction output grew by about 8% year-on-year, after nearly 7% a year earlier, and a few years with growth rates of at least 12%.

In contrast, Estonian construction output recorded a negative rate of growth in 2014, with a 1.7% reduction, after a 3.2% rate of growth seen in 2013. PMR said it was worth noting that Estonia’s negative result in 2014 largely reflected the very high base effect established between 2011 and 2013, when Estonian construction output rose by 26% year-on-year in 2011 and by almost 18% in 2012.

According to PMR, the key factors which recently contributed to the upsurge in construction activity in the Baltics included an improvement in economic growth, with the GDP growth rate in all three countries exceeding the 2% threshold in 2014. The economy expanded by 3.0% in Lithuania, 2.9% in Estonia and 2.8% in Latvia.

Even more substantial GDP growth rates were recorded a year before – a rise of 3.5% in Lithuania and 3.0% in Latvia.

Revival

PMR said the major driver behind the ongoing steady upward trend in construction activity in the Baltics had been the revival of residential construction activity in all three countries.

In Lithuania, the region’s largest country, which is responsible for between 35% and 40% of the construction output in the region every year, the total floor area of new residential buildings for which building permits were granted rose by almost 19% year on year in 2013, following a 24.5% rise in 2012.

In Latvia and Estonia, this indicator improved by 13.3% and 10.7% respectively in 2013.

However, in Latvia the total residential space associated with building permits granted last year was 27% short of the figure recorded in 2013, whereas in Lithuania the contraction was less dramatic at only 7.4%.

PMR said the slowdown primarily reflected the negative external economic shock from developments in Russia.

It added that this year, the residential market in the region was also expected to be overshadowed by the fallout from the economic turbulence in Russia, which constrains residential construction activity, particularly in Latvia.

In contrast, Estonian residential construction has been less vulnerable to the economic turmoil in Russia. The floor area of new residential buildings for which building permits were granted in Estonia last year was 16.4% more than the 2013 result and almost 29% higher than the figure recorded in 2012.