Construction output grows by 4.2% y/y in Romania

Construction output increased by 4.2% y/y wda in January (revised prints with new base year 2015), according to preliminary data published by the state statistical institute today (all prints in adjusted terms). The construction sector marked only a few increases in output in 2017, the strongest of which in December, heavily fueled by a jump of the residential works, most probably backed by the announced private projects in the field. In addition, the non-residential and civil engineering works softened the deterioration, as the state improved the EU funds absorption and most probably sustained some public investments in infrastructure.

The increase continued in January, even if with a milder pace. The January rise was mostly on the back of a significant increase of civil engineering works, the highest in about two years. The civil engineering works include construction of roads, railways, bridges, airports and arenas, so the improvement was most likely fueled by the public-sector investments. Meanwhile, the residential construction works decreased y/y in January, after being the most important positive factor of the constructions sector’s development in 2017. The fall might indicate that the major private residential projects started last year were finalizing. However, other important ones were already announced in the local media for this year, so we expect better performances as of this spring.

In the other breakdown, the new construction works was again the major driver fueling the sector’s rise in January, most probably backed by some new civil engineering projects. The current repairs stopped falling y/y, but the capital repair works kept on decreasing in the month, which indicates that the public investment rebound was mostly directed towards new construction projects.

Overall, the construction sector remained on the rise in January, even if weaker than in December. The public investments pick up, fueled by a better EU funds absorption, still has positive effects in the sector. However, the absorption weakened at the beginning of this year, so we expect the public spending in construction to decrease with the lower EU financing. The performance might very likely keep on losing strength in the following period, in our view. Still, several major residential projects were announced by some big private contractors, which might start as of this spring, fuelling the construction sector improvement. In addition, the low base might also add to sustain the positive annual dynamics of the construction at the beginning of Q2.

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