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Construction industry executives across Europe have warned that “dangerous” price hikes and the shortage of many building materials run the risk of undermining the world’s € 800 billion flagship economic stimulus program. EU.
The EU construction sector generates almost 10% of the bloc’s economic output and major infrastructure projects make up a considerable proportion of Brussels’ recovery fund, which will distribute grants and loans to rebuild the economies of the member states after the Covid-19 pandemic.
But prices for building materials, from steel and wood to concrete and copper, have begun to rise sharply in recent weeks as the economic recovery both in Europe and elsewhere (including the US and China) causes a construction boom.
According to the European Federation of the Construction Industry (FIEC), bitumen prices have risen by 15% in just three months, cement prices have risen by 10% in a single month and timber prices have risen further of 20%.
Public infrastructure projects often impose penalties on builders for delays, while contractors often bear the cost of unexpected price increases.
Domenico Campogrande, director general of the FIEC, warned that rising prices and additional delays run the risk of diluting the impact of EU funds.
“The danger is that we have this big EU recovery plan, but if 30 to 40% of these funds are absorbed in additional financial instruments to cover higher prices, it would be nonsense, as it would not go into the ‘real economy,’ ‘he said.
In a recent letter at the European Commission, the FIEC expressed its “alarm” at rising prices and shortages of materials, including twice the Italian price of steel bars used to make reinforced concrete in four months in March.
“This phenomenon jeopardizes the contribution of the construction sector to economic recovery and threatens the potential impact of European recovery programs,” he said.
In Italy, the largest beneficiary of the Brussels stimulus, the government plans to invest more than 100 billion euros of its EU funding in the construction of new infrastructure over the next five years. But the construction sector has warned officials that it will struggle to meet the challenge without major reforms.
“We are facing the shortage of many basic materials for construction and this is very dangerous, as Italy is being more affected than the rest of Europe,” said Flavio Monosilio, ANC’s research director, l association of Italian construction companies. “This crisis is at the heart of the EU’s new recovery plan.”
Construction executives blame several bottleneck factors, including the sharp rise in demand that has outweighed the weight supply of materials in many countries, as well as the disruption of supply chains related to the pandemic and continued trade tensions.
Some materials have been affected by additional problems, such as a beetle infestation that has affected timber production and delays in the redistribution of unused steel.
Thomas Birtel, CEO of Austrian construction group Strabag, said price rises “have risen tremendously in the last two weeks” and that the company had to “report delays in individual construction works because the material already is not available “.
Strabag, which built the Copenhagen metro in Denmark and the Limerick tunnel in Ireland, operates its own concrete and asphalt plants, but Birtel said: “Construction is a small-scale business and it is not even possible to control the supply chains of all material buildings “.
In Germany, 44% of construction companies surveyed by the Ifo Institute in May reported problems in the acquisition of material on time, compared to 6% in March.
“We haven’t seen a bottleneck like this since 1991,” Felix Leiss told Ifo. “Obviously, this caused the construction activity to slow down in April, at least temporarily.”
Production in the German construction industry fell by 4.3% in April compared to the previous month, although companies in the sector reported a cumulative reserve of orders of 62 billion euros in March.
“Many producers can’t supply the materials before the end of the year and that’s a real problem,” Stephan Rabe told the German construction industry association. “A lot of money is being spent on public and private sector construction projects in the US and China, and this is absorbing a lot of materials. The wood is produced in Germany and exported to the United States, so it is scarce here.
Some German politicians have called on Berlin to call for temporary restrictions on EU exports of wood and other materials.
As the U.S. government prepares to launch $ 1.7 million program infrastructure and the global economic rebound is expected gain pace, pressures are expected to remain high in the coming months.
“It will take time to get back to normal, at least by the end of the year,” Campogrande said.
Some countries, such as France and Germany, have responded by facilitating rules on some public sector construction contracts, waiving late fees and compensating contractors for unforeseen price increases.
Monosilio said Rome had yet to offer any relief to the sector, which has been hit by a decade-long drop in investment in public infrastructure, lack of bank funding and long delays in project approvals and payments. .
Italian Prime Minister Mario Draghi has said the “fate of the country” depends on the success of one Package of 248 billion euros of investments and reforms financed mainly by the EU Recovery and Resilience Plan. It includes investments in high-speed train lines, renewable energy facilities, smart grids and energy-efficient buildings.
EU states have a poor track record in distributing funds; in the six years to 2020, on average they spent just over half of the money Brussels allocated.
Without reforms to address the problems of the Italian construction sector, Monosilio said similar problems could hamper EU recovery efforts in spending.
“The Draghi government absolutely wants to improve the situation,” he said. “[But] it is a sword of Damocles that hangs the whole European project “.
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