Construction in the Baltic countries (comprising Estonia, Latvia and Lithuania) had been growing at a quick pace prior to the Covid-19 crisis. Although the region will not be immune to the Covid-19 crisis, these markets are not expected to suffer to the same extent as major markets across Europe. This primarily reflects that the positive underlying growth momentum prior to the onset of the spread of Covid-19 and the lockdowns were relatively milder and over a shorter period.
According to Eurostat, the Estonian construction industry grew by 15.4% year-on-year in Q1 2020, while in Latvia, construction grew by 11.9% year-on-year, and in Lithuania there was a 6.2% year-on-year expansion during the same period. Growth momentum in Estonia was driven primarily by civil engineering, which expanded by 20.2% year-on-year in Q1 2020, with buildings construction rising by 6.7%. It was a similar situation in Lithuania, where civil engineering work soared by 23.4% in Q1 2020, outpacing the still healthy rate of expansion in buildings construction of 8.7%. In Latvia, the building construction sector was booming ahead of the crisis, with an expansion of 16.4% year-on-year in Q1 2020. Civil engineering construction in Latvia was up 6.7% year-on-year during the same period.
Estonia is the worst-affected country in the Baltic States in terms of confirmed coronavirus cases. The country had reported 1,965 Covid-19 cases and 69 deaths as of 10 June. The Estonian Government has taken various measures to contain the spread of the coronavirus, including declaration of state of emergency, travel restrictions, border closures, social distancing and ban of public gatherings in mid-March. To mitigate the effects of Covid-19 on the economy, Prime Minister Jüri Ratas announced an economic package worth €2bn in March. The prospects for Estonia’s government to accelerate the mega project pipeline for public infrastructure works are low, given that 82% of projects are in the planning stages, however, the government has allocated €145m ($162.1m) as a part of its aid package to support the construction industry. Moreover, it plans to support its economy and the construction sector by launching major projects if the economic crisis worsens even further. Recently, it said that major projects that are ready for immediate construction procurement will be reviewed.
Lithuania has reported 1,752 confirmed infections and 74 deaths since the start of the outbreak. In order to contain the Covid-19 spread, on 16 March, the government implemented various containment measures, including nationwide lockdown, cancellation of public events, shutdown of non-essential shops and closure of schools. To mitigate the effects of the coronavirus epidemic, the government announced economic stimulus package of €2.5bn in March. In Lithuania, the construction industry was mostly unaffected by the pandemic, and progress is being made on Lithuanian’s portion of the Rail Baltica project, according to the country’s transport minister. The project will connect three countries, Lithuania, Latvia and Estonia, through high-speed rail by 2026. In a more positive development, in early May, the finance ministry unveiled a long-term investment plan worth €6.3bn ($7bn), equivalent to 13% of the country’s GDP, to revive the country’s economy after the pandemic. The plan is a combination of new, and stepped up planned investments in five areas, including infrastructure, and climate change and energy. Of the total, €1.9bn ($2.1bn) will be invested on economic infrastructure to develop airports, free economic zones (FEZ), seaport and inland waterways, and railway infrastructure, whereas €932m ($1bn) will be invested on climate change and energy to develop offshore wind infrastructure, upgrade energy-inefficient buildings and increase electricity generation from LNG.
The outbreak of Covid-19 transmission in Latvia has been relatively well managed. The country has reported 1,094 Covid-19 cases and 26 deaths as of 10 June. In order to contain the Covid-19 spread, the government announced state emergency on 13 March, which was being gradually relaxed from 12 May. On 20 May, Prime Minister Arturs Krišjānis Kariņš announced that the country’s state of emergency would end by 9 June. To support businesses and employees, the government announced a financial relief package of €2bn in March. Although the government has imposed measures to contain the pandemic, the construction industry was not completely shut down, and the industry continued to operate with 85% capacity. Progress of construction projects was hampered by the delay in delivery of building materials, and difficulty in the movement of workforce and materials. However, in a positive development, in mid-May, the Prime Minister announced that the government will focus on three main areas in its economic recovery plan, including infrastructure. The plan involves an allocation of €75m ($83.8m) for the construction and maintenance of road infrastructure in 2020. According to the transport ministry, during an economic downturn situation, investment on public infrastructure projects like roads and bridges, will contribute to development of construction and related industries, and create employment. It expects that investments on the national infrastructure projects will play a key role in the economic recovery of the country after the state of emergency is ease.
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In mid-May, a coronavirus ‘travel bubble’ was announced, allowing the citizens of Estonia, Latvia and Lithuania to move freely across the region. The opening of the borders was created in view of the declining Covid-19 cases in the region and is expected to support the economies in these countries. While the citizens from these countries could easily travel within the region, visitors from outside the region were still expected to self-isolate for 14 days. Furthermore, as the number of cases dwindled across Europe, on 29 May, the Estonian Government announced the decision to open its borders from 1 June to the passengers arriving from 24 European countries. The Latvia Government also allowed entry for European citizens, Switzerland and citizen from European Economic Area from 28 May.
Construction work in the region will decline sharply in Q2, before recovering ground in the second half of the year, assuming that the spread of Covid-19 is contained. The commercial and residential markets are likely to be the hardest hit in 2020 due to Covid-19 crises. However, given the high levels of growth in Q1, it remains likely that the industry will still manage to post a positive outturn over the year as a whole. GlobalData expects the Estonian construction industry to grow by 6% in 2020, whereas the Latvian construction industry by 4.2% and Lithuanian construction industry by 3.5% during the same period. However, there is a high likelihood of downward revisions if activity in the short-term is more severely disrupted than currently anticipated. GlobalData expects the construction industry to regain growth momentum in 2021, driven by recovery in foreign investments, exports, consumer and business confidence and the government’s investments in the infrastructure construction projects.