The output of Hungary's construction sector jumped 28.2% y/y in June, rising at the fastest rate since January, driven by an upswing in EU-funded infrastructure developments, data released by the Central Statistics Office (KSH) on August 10 show.

Output of the buildings segment was up 15.2%, lifted by construction of schools, factories, stores and homes, KSH said. Civil engineering output increased 48.8%, supported by road, railway and utilities projects, it added.

On a month-on-month comparison, output was up 7.2%, adjusted for seasonal effects and the number of workdays. The massive growth in new home constructions seen from the second half of 2016 seems to have slowed down as developers face capacity constraints, which is leading to massive delays in projects.

Uncertainties over the extension of the favourable VAT rates for new constructions also slowed down new developments. The number of home building permits issued in the first half fell 8.9% y/y to 18,066 and by 27% y/y to 6,119 in Budapest.

From January 1, 2020, VAT will go back from 5% to 27%, which is the highest in the EU. Industrial groups and banks have lobbied for temporary measures to ease the transition to the higher tax rates for projects that will be completed after 2020.

Construction sector output for first six months was up 19.1% y/y. In absolute terms, output stood at HUF320.1bn (€991mn) in June, a historic record, and HUF1.25 trillion in January-June.

The stock of orders for new buildings was up 7.5% and by 82.9% in the civil engineering segment, foreshadowing massive growth in state funded infrastructure projects. New order volume edged up 0.6% as new orders for buildings fell 12.1%, but civil engineering orders rose 8.1%.