Swedish construction activity weakens, but fares better than others in the region

8 June 2020 (Last Updated June 8th, 2020 15:58)
Swedish construction activity weakens, but fares better than others in the region

In contrast to many other countries, the Swedish Government has taken a liberal approach in its response to the Covid-19 outbreak and has opted against a strict lockdown. Swedes have been advised by public health authorities to self-isolate and take precautions, however the results of the strategy have been costly in health terms. Sweden has thus far reported over 35,000 cases and 4,260 deaths, a higher death toll than its Nordic neighbours combined. The government has taken a few measures to contain the virus outbreak, including suspending all international flights coming into and out of the country in mid-March banning gatherings of more than 50 people and advised citizens to avoid bars and restaurants. In late-March, the government directed schools and universities to provide distance learning until further notice.

Despite the country’s struggles in containing the virus, the economy recorded growth in the first quarter of the year with GDP increasing by 0.4%. The economy has outperformed its peers in Europe, Eurozone GDP fell by 3.8% while EU GDP fell by 3.5% in the first quarter. The construction sector has also benefited from the limited containmeant measures in Sweden; construction output in March increased by 0.8% compared to February, while output in Q1 fell marginally by 0.1%.

The Swedish construction industry has fared better than its European counterparts in large part due to the less stringent lockdown measures applied in the country, while construction sites temporarily shut down across much of Europe, sites have remained open across Sweden. The Swedish construction firm Skanska announced at the end of March that it would aim to keep most sites active throughout the pandemic. According to Eurostat, in May, Sweden’s construction confidence index increased to 66.7, up from 63.9 recorded in April.

Despite the relatively limited impact from Covid-19, the outlook for the Swedish construction industry is still negative. Prior to the current crisis, the industry was already in a weak state, due to the sluggish economic outturn. GlobalData had initially predicted an output contraction of 1.3% for 2020. However, in view of the gloomier economic outlook, the forecast has been revised downwards – GlobalData now expects the construction industry to contract by 4% in 2020. Assuming that the outbreak of the virus is contained within the second quarter, there is the potential for a recovery in the second half of the year, with the government seemingly prepared to push ahead more quickly with infrastructure spending plans. On Monday, Stockholm’s public transit authority announced it had plans to upgrade and expand the city’s bus infrastructure. Although downside risk remains, particularly if the virus outbreak worsens, Sweden’s construction sector is likely to fare better than most of its European neighbours.