Construction output growth accelerated to 35.4% y/y in May, up compared to the 22.1% y/y increase in the previous month, the statistical office (KSH) reported. The strong increase was a combination of dynamic development of the sector and a low base from the previous year, in our view. In calendar- and seasonally-adjusted terms, construction output expanded by a strong 7.5% m/m in May. Construction has been on a firm upward trend since early 2016 and the output level has almost overcome the slump caused by the temporary drop in EU fund absorption.
Both building and civil engineering construction contributed to the pick-up in output growth during the month. Building construction output rose by 27.2% y/y in May, which was mainly because of construction of industrial and warehouse facilities, the KSH said. Construction of sports and educational buildings also contributed to the expansion in the segment. Civil engineering output rose by 46.7% y/y, which, together with the March print, was a record strong increase. In addition to the low base effect, civil engineering expanded because of road and railway construction works, the KSH explained.
The outlook for the construction sector remained strongly positive, in our view, since new construction orders rose by 53.2% y/y in May. New order growth moderated from the triple-digit increases in Dec-Jan but the stock of orders remained significantly higher, up by 94.3% y/y as of end-May. New building orders fell by 12.0% y/y during the month but we think that backlogs of work should ensure further growth in the segment in the next months. New civil engineering orders rose by 99.5% y/y, in our opinion highlighting the positive impact from the renewed EU fund absorption. Some part of the construction growth might be due to government investments in infrastructure necessary for Hungary hosting the world water championships this year so we believe that growth could moderate after the process is complete but should still remain positive.