Construction, real estate still ‘significant’ despite diminishing economic share

The economic share of construction and real estate has diminished over two decades but they remain significant contributors to other sectors, a study shows.

The share of construction to the country’s gross value added (GVA) declined from 6.1% in 2000 to just 4.7% in 2021, and that of real estate increased slightly to 5.6% from 5.5%, the analysis prepared by Ian Borg and Noel Rapa from the Central Bank of Malta shows.

Between 2014 and 2021, each sector contributed annually 0.3 percentage points to GVA growth, “a modest contribution” when compared to other sectors.

Services-related sectors such as the professional and administrative sector, and the information and communication sector, were the main drivers of growth during the period 2014-2021.

Even in terms of employment share, the two sectors are among the lowest. Construction employed around 17,100 persons in 2021, while real estate employed around 3,400 people.

Over the period 2014-2021, the construction sector directly accounted for 5.9% of total employment. This share declined when compared to the period prior to 2014. Meanwhile, the real estate sector employed 1% of total employment during the same period.

“When compared to the other main sectors within the economy, the construction sector was the fourth smallest in 2021, whereas the real estate sector has the second lowest share,” the report authors said.

Nonetheless, despite the declining shares in value added and employment, the study found that construction and real estate still retain “significant linkages” to other sectors of the economy.

The authors stated that a 10% increase in the final demand of construction and real estate sectors will raise overall GVA by almost 1% with significant effects on sectors such as the manufacture of non-metallic mineral products, manufacture of fabricated metal products, architectural and engineering activities, technical testing and analysis.

“Although the direct share of construction and real estate in the economy has diminished over time, the two sectors still feature significant linkages to the rest of the economy,” the report authors concluded.

The study formed part of the CBM’s first quarterly review for 2023 that was published recently.