Italy

Overall construction activity

After the robust growth recorded in the post-pandemic period (+8.3% in 2021 and +4.0% in 2022), the Italian economy showed a positive performance in 2023. National accounts data published by the Italian National Statistics Institute (ISTAT) show an increase in GDP of +0.9% on an annual basis, a slight upward revision compared with the +0.7% estimated last December.

Growth will be driven by domestic demand, particularly in the investment component (+4.7% in 2022), with a prominent contribution from the construction sector, which has been the main driver of growth in the Italian economy over the last three years. According to estimates by the National Association of Italian Constructors (ANCE), around a third of GDP growth over the period is attributable to the construction sector.

Expectations for 2024 remain cautious, given the highly uncertain and changing economic environment. The estimates published by the European Commission in mid-February show a limited increase in Italy's GDP (+0.7% on an annual basis), which is a slight downward revision of the autumn estimates (+0.9%). According to the new forecast, growth is expected to remain weak until the first half of 2024 and then to accelerate, thanks to a partial recovery in consumption and, above all, the effective implementation of the public investments included in the National Recovery and Resilience Plan (NRRP).

2023 will be another positive year for the construction sector, reinforcing the exceptional expansion of the previous two years. The ANCE estimates real sector growth of +5.0% year-on-year in 2023. The expansion in the sector's production level affects all sub-sectors and is driven not only by public works, but also by investment in housing renovation, which has been stimulated by tax incentives such as the Superbonus tax deduction and, above all, the possibility to transfer tax credits or invoice discounts.

The impact on employment has also been significant. According to ISTAT data, the number of people employed in the construction sector increased by 22,000 units in 2023 (+1.3% on an annual basis), reinforcing the positive trend that has been underway since the post-pandemic year.

On the other hand, the housing market recorded a decline of -9.7% in the number of housing transactions compared to 2022, with a total of 709,591 housing units sold, interrupting an expansion that, since 2021, had brought transactions back to levels comparable to those recorded in 2007. This negative trend is undoubtedly influenced by the restrictive monetary policy of the European Central Bank (ECB), which is responsible for making access to mortgages more difficult.

The outlook for 2024 is rather uncertain and the formulation of estimates for both the general economy and the construction sector is rather complex. In fact, macroeconomic developments will be determined on the one hand by inflation trends and the resulting monetary policy decisions of the ECB, and on the other hand by the development of the conflict in the Middle East, which could push up the prices of key commodities in the event of a serious escalation. In this context, the main research institutes' assessments of Italian growth in 2024 are cautious (forecasts of less than +1% growth).

These elements of instability will not spare the construction sector: ANCE's forecast for the current year is a decline of -7.4% compared with the previous year. The forecast is undoubtedly influenced by the absence of the expansionary contribution of extraordinary maintenance, due to the abolition of the transferability of tax credits or the invoice discounts. This decline will only be partially offset by the civil engineering sector, which will be supported by the NRRP.

Housebuilding

ANCE estimates that investment in residential construction increased by +0.7% in real terms in 2023 compared to the previous year. Although the change in the level of housebuilding production is more subdued than in the previous two years, it still implies an increase in investment in new housebuilding and a sustained positive trend in investment in housing renovation.

In fact, the new housing segment shows a further trend increase of +1.3% in real terms, linked to the positive trend in building permits that has been ongoing since 2016, interrupted only by the negative result in 2020 (-11.2%). Similarly, investments in the renovation of the housing stock continued to grow, with a real increase of +0.5%.

The stability of the latter segment, following the extraordinary expansion of the previous two years, is due to the tax incentives linked to the renovation of the housing stock, in particular the Superbonus measure, which has proved to be an engine of growth with enormous potential, capable of quickly transmitting its expansionary effects to the segment and the economy as a whole.

The ANCE's forecast for 2024 foresees a decline of -21.3% in total investment in residential construction, due in particular to a reduction in investment in extraordinary maintenance of dwellings (-27.0%), which will be affected by the abolition of transferable tax credits and invoice discounting mechanisms. Investment in new housing is also expected to fall (-4.7%), due to a reversal in the trend of residential building permits issued from the second half of 2022.

Non-residential construction

In 2023, private investment in non-residential construction will increase by +5.0% in real terms year-on-year, confirming the positive trend that started in 2016 and was only briefly interrupted by a negative result in the first year of the pandemic.

The estimate takes into account the robust positive trend in non-residential building permits that has continued since 2015 and a still favourable macroeconomic context, which has a significant impact on the production level of the segment, as this specific segment is significantly affected by the performance of the various sectors of economic activity.

The outlook for private non-residential construction in 2024 foresees a -1% decline in production levels. In addition to the decline in permits, this figure takes into account a particularly unstable and rapidly changing macroeconomic context, which has a significant impact on investment decisions and therefore on the performance of the sector.