Significant energy price increases, expensive materials, sharply rising interest rates, and general uncertainty are a great impairment to construction, and the construction industry is feeling this. Almost every third small construction company in Denmark expects that 2022 will end up with a lower profit than in 2021, and the expectation that there will be enough to do for the rest of the year, is at its lowest in ten years, SMVdanmark writes in a press release.
This is shown by an analysis from SMVdanmark, which organizes 18,000 small and medium-sized companies.
Fixed price contracts have drained the funds
Lasse Lundqvist, consultant at SMVdanmark, believes that construction is rightly facing a dark winter.
The many fixed-price contracts, which, especially in the first half of the year locked companies into loss-making tasks because material prices massively increased, have drained the coffers. The smaller companies are typically less well cushioned and do not have the same liquidity to withstand the pressure, he says.
Activity in construction is already far below normal, and every sixth construction company expects the number of employees to fall over the next three months.
Prospects for bankruptcies
The figures are ominous and indicate that we will see more bankruptcies in the construction industry in the coming time, says Lasse Lundqvist.
The construction industry is a good temperature gauge for the economy, because it is so sensitive to economic conditions. When the economy is bad, construction slows down. We have previously seen that a decline in construction spreads to the rest of the economy with bankruptcies and falling employment, he says.
A consolation in a dark time
While the total number of construction offers has fallen significantly over the last three quarters, just as overall construction activity is falling, there is, on the other hand, growth in energy-efficient construction projects. This is positive and can help hold the hand under many of the pressured companies, believes SMVdanmark: – Both companies and private individuals have, in light of the energy crisis, thrown themselves into energy efficiency initiatives to minimize their energy consumption. These are initiatives such as heat pumps, solar cells, geothermal heating and insulation, which are in high demand at the moment. We should encourage that interest by introducing a green investment deduction that gives very energy-intensive companies the opportunity to deduct the resources they use on energy efficiency, says Lasse Lundquist.
