Hungarian construction continues free fall in April

Hungarian construction continues free fall in April
By bne IntelliNews June 15, 2016

Hungary’s construction output plummeted 29.8% y/y in April, statistics office KSH reported on June 15. The data shows the fall activity in the sector - driven by a drastic cut in EU funded projects - continues to gather alarming speed.

The fall reflects declines in both building construction and civil engineering. However, it was the 52.1% drop in the latter that did most of the damage. As in the previous three months, that is due to a sharp decline in projects driven by EU funds. 

Although on a monthly basis output grew 2%, April marked the fourth month of huge annual decline in a row, following a 33.9% y/y drop in March. Plummeting construction activity, added to feeble performance in the industrial sector, drove the Hungarian economy to a disappointing 0.8% y/y contraction in the first quarter. While the auto sector finally drove Hungarian industry out of early year slump in April, the weak output of the construction sector will maintain concern over economic performance in the second quarter.

Like its regional peers, Hungary rushed to absorb as much financing from the EU's 2007-13 budgetary window as possible in 2015, as it sought to catch up in the final year for claims. Projects funded under the 2014-20 programme are yet to get up and running.

"The largest decrease was recorded (…) in the output of road and railway construction enterprises,” KSH notes. The volume of new contracts was 24.4% lower in annual terms. The month-end volume of the contract portfolio of construction companies continued to be lower than a year earlier, by 17.4% at the end of April.

Hungary has said it is accelerating the process to start EU funded projects in order to soften the impact on the economy. Analysts suggest funds will start to flow from Brussels in the second half of 2016. The cabinet announced it is to invite infrastructural public procurement tenders worth nearly HUF500bn (€1.59bn) in total by the end of the year.

In a bid to support the sector, the government also lowered value added tax on home building to 5% from 27% in 2016-2019, and announced a new housing subsidy programme and a scheme to set up state-backed building societies.