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OPINEWS

Why has construction become a dangerous sector for the economy?!

Politiko 2026-09-01 16:29:24

By Irena Beqiraj
Construction activity becomes dangerous for an economy when:
1) its share in Gross Domestic Product (GDP) crosses the 10% threshold, or
2) when the sector's growth exceeds overall economic growth by more than 2 to 3 percentage points
while a credit boom for real estate/construction + property price increases are observed.
When investments in construction and real estate account for more than 10% of GDP, the sector also expands faster than the economy as a whole, this indicates a structural imbalance in the economy. In addition to the fact that construction does not have the growth potential that many other sectors can offer, where I would single out industry, more investment in construction not only diverts resources from more productive activities, making the economy even more unproductive, but its impact on the financial sector extends over the longer term. So the effects are felt even when the sector's expansion rates slow down.
The data for Albania provide strong evidence that construction is already a risk to the economy.
-The 10% threshold has been exceeded since 2022!
The share of construction increased from 9.5% of GDP in 2021 to around 11.2% in 2022, reaching 12.6% of GDP in 2025. This level undoubtedly indicates a very clear structural change.
While in 2021 construction was still below 10% of GDP, the second criterion of relative growth recognized a strong excess, it grew approximately 9 percentage points faster than GDP. This was an extremely strong excess of the growth of the construction sector relative to the economy.
In 2022 the construction sector exceeded the 10% GDP threshold. While construction growth was 10.7%, compared to GDP growth of approximately 4.8%, a premium of about 5.9 percentage points, again higher than the relative threshold of 3 percentage points.
In 2023, construction accounted for 11.65% of GDP while still growing about 6 percentage points faster than GDP.
Meanwhile, in 2024-2025, construction continues to account for over 10% of GDP but its growth compared to economic growth normalizes to be only 0.5% higher.
However, in the formulation of the above conditions there is an important definition: "during a construction lending boom + property price increase"
In 2022, lending for new construction reached 22.7 billion lek in the first seven months alone, marking an increase of 38% compared to the same period in 2021. The outstanding construction loan portfolio reached 70.4 billion lek, almost 30% higher compared to the same period last year. At the same time, the value of construction permits increased by 54% in the first half of 2022 and property prices were increasing by approximately 9% per year.
In 2023, banks provided approximately 39.6 billion lek in new construction loans, about 6.7% more than in 2022. Construction was the second largest beneficiary of new business credit, accounting for about 18.2% of the total.
Then, in 2024, new construction lending increased to 48.6 billion lek, another increase of 22.7%, while the outstanding construction portfolio reached 77.9 billion lek, an increase of about 7%.
In 2025, credit to the private sector expanded by approximately 16% in the first half of the year, bringing the private sector credit-to-GDP ratio to 32.7%.
So, we have an important difference:
2021–2023: rapid growth of the construction sector + rapid growth of property prices + acceleration of real estate/construction lending, while in 2024–2025: sector growth slows down but real estate lending continued to expand rapidly as prices only increased.
This is a warning sign that although construction sector growth has normalized and become comparable to economic growth, real estate lending and property prices have continued to increase.
So, the story seems to be moving from a construction production boom to a broader real estate financing risk.
Even the Bank of Albania itself, with its sophisticated language so as not to upset the government, has considered this situation as sufficiently dangerous, so in 2025 it introduced new macroprudential restrictions on real estate lending.
So the data warns us that we cannot continue to play with fire. The sector's overheating index, although it decreased from 6 to 4 in 2024, increased again to 5 in 2025, which shows that the cooling and normalization of the construction sector in the economy is not so simple, due to the strong connection with the financial sector. Meanwhile, it is a sector that cannot support economic growth in the long term.
Whoever designs the economic policies of this country should put his finger on his head, if he still has a head on his shoulders.