2018 looks like the decade’s worst year for Romanian construction companies

2018 looks like the decade’s worst year for Romanian construction companies
By Iulian Ernst in Bucharest January 16, 2019

The construction works volume in Romania decreased by 4.9% y/y in November, the statistics office INS informed. In the January-November period, the volume of construction works contracted by 4.1% y/y.

The average construction works volume in the rolling 12 months edged down by 2.7% y/y as of November to the weakest point in the decade since the 2008-2009 recession, indicating Romanian construction companies probably had the weakest post-crisis year in 2018, unless December construction data provides a big surprise. 

For comparison, the average industrial production volume soared by 48% in the 12-month period ending November 2018, compared to the peak year before the crisis (2008). The real estate bubble seen before 2008 contributed to the construction market's dynamics over the past decade, but workforce mobility — higher in construction compared to industry, contributed as well.

The activity of construction companies declined for the third year in a row and hit the lowest level post-recession, after their output contracted by 5.6% in 2017 and 4.4% in 2016. The workforce shortage in particular had an impact, and the fiscal allowances given by the government should in principle alleviate the labour market tightness: higher wages and lower taxation should in principle bring back some of the workers from abroad or at least stop labour migration. But this remains to be confirmed by developments in 2019.

In the first eleven months of 2018, the volume of construction works in the residential segment plunged by 29% y/y to reverse the 70% y/y advance boasted in 2017. Consumer sentiment, rising interest rates and tighter lending regulations might push the residential segment down in the near future as well. The non-residential segment (offices, retail centres) contracted by only 3.2% in January-November 2018, but this came on the top of a 12.7% decline in 2017. The civil engineering segment, which includes the infrastructure works financed typically by the state, saw a 10.1% y/y advance in January-November, which offset only part of the 21.7% y/y decrease in 2017. In 2017 the volume of civil engineering works hit the weakest post-recession levels and picked up marginally in 2018.