Construction Costs May Spoil Europe's Recovery Plan

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Rob Wells

Like the United States post-pandemic recovery plan, the European Union passed an €800 billion program to speed the continent's recovery. But now, construction executives and organizations warn that a rapid rise in construction costs may cause a significant speed bump in that plan and may stop the recovery altogether.

Construction accounts for 10% of the EU's economic output. As a result, the government committed a significant part of recovery resources to infrastructure. But, just as in the United States, the high costs of building materials in Europe impact construction. For example, according to the European Construction Industry Federation (FIEC), cement prices have risen 10% in a single month, and wood prices went up more than 20%.

Domenico Campogrande, director-general of FIEC, expects price hikes and delays due to material shortages to dilute recovery funds as the government spends more money to do less.

"The danger is that we have this big EU recovery plan, but if 30 to 40 percent of these funds are absorbed in extra financial instruments to cover the higher prices, it would be a real nonsense as it won't go into the real economy," he said.

The FIEC wrote a letter to the European Commission in which they complained that the price of steel for rebar in Italy had doubled in the last four months. Italy receives the most significant portion of the recovery money as it was hardest hit by the virus—€100 billion to spend on infrastructure over the next five years.

Europe's material shortages and price increases are hitting there later than they did in the United States. A new survey of German contractors said 44% were experiencing shortages today versus only 6% in March. Much of the problem lies in Europe exporting lumber to the US and China to make up for their shortfalls.

Campogrande believes things will even out, but it will probably take until the end of the year. In the meantime, economic recovery funds dwindle. The FIEC says it all rests on the shoulders of the Italian government.

"The [Italian] government absolutely wants to improve the situation," he said. "[But] it is a sword of Damocles hanging over the whole European project."

Shortages of building materials and rising prices endanger the economic recovery by eating up a large percentage of Europe's infrastructure investment.

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