Housing construction and EU funding could give the sector a boost

Based on its order book, the construction sector is set to expand in the coming period, with demand for housing construction – which is also supported by the Otthon Start programme – likely to play a significant role. The sector could also receive a boost if, in line with market expectations, Hungary succeeds in accessing the EU funds to which it is entitled – analysts stated in response to the latest data from the Hungarian Central Statistical Office (KSH) regarding MTI.

The Hungarian Central Statistical Office announced on Wednesday that

In March, the volume of construction output was 3.9 per cent higher than a year earlier according to raw data, and 2.0 per cent higher according to working-day-adjusted data.

Demand for housing construction could boost the market

Dániel Molnár, senior analyst at the GFÜ Economic Analysis Centre, noted that construction output grew year-on-year in March. However, the trend is unfavourable; due to the slump in the sector in January, production volume in the first quarter was 5.4 per cent lower than in the fourth quarter of last year. On a positive note, however, both main construction categories contributed to the growth in March.

The expert highlighted that, based on the order book, the construction industry is likely to expand in the coming period.

Demand for housing construction, which accounts for 15–20 per cent of the sector’s output, is likely to play a significant role in this; this is supported by state subsidies, the Housing Capital Programme and the Otthon Start programme.

Judging by the order book, growth in other construction projects—which are largely driven by public sector demand—is likely to continue, whilst the expansion of corporate demand is being affected by uncertainty surrounding the economic outlook. The stronger forint exchange rate may support the construction sector by moderating import prices and reducing costs, which could also be reflected in prices. However, this process may worsen the situation of domestic suppliers, meaning that the knock-on effects of the sector’s recovery may only be felt within a narrower circle – explained Dániel Molnár.

Construction costs remain high, but the market outlook is improving

Gábor Regős, chief economist at Gránit Alapkezelő, reported that construction output grew in March on both a monthly and annual basis. The first quarter was characterised by a 4.2 per cent year-on-year decline, partly due to the cold weather in January, which hampered construction work, and the sector failed to make up for the shortfall in the following two months. All this paints a mixed picture of the construction industry’s performance; the sector is not in crisis, but nor is it able to achieve significant growth, a situation in which the lack of EU funding, low investment appetite and the shortage of funds at central and local government level continue to play a role.

At the same time, the growth seen in March indicates that the sector has passed its lowest point, with output in both main construction categories increasing year-on-year.

Gábor Regős also noted that, in the first quarter, producer prices in the construction industry once again rose at a rate exceeding inflation – by 4.7 per cent year-on-year and 1.8 per cent quarter-on-quarter – and that the sector is still waiting in vain for price levels to normalise.

He pointed out that the order book at the end of March was 4.8 per cent higher than a year earlier, so more modest growth can be expected in the coming months.

However, if, as market expectations suggest, Hungary succeeds in accessing the EU funds to which it is entitled, this could provide a boost to the sector, which may already have a significant impact on the figures for the second half of the year.