Construction output growth picks up to 38.1% y/y in Hungary

Construction output growth accelerated to 38.1% y/y in October, up from the 23.8% y/y growth in the previous month, the statistical office (KSH) reported. Output expanded by 6.0% m/m in calendar- and seasonally-adjusted terms and in general, maintained a strong upward trend since the beginning of 2016. The level of construction output already exceeded the level before the end-2015 slump, which reflected the gap in EU fund absorption. We think the government’s efforts to accelerate the payments of EU funds as well as its housing program contributed to the construction strong development. The non-residential building sector also appears buoyant, in our view possibly supported by low interest rates and a booming economy.

Both the buildings and civil engineering segments picked up in October. Building construction output accelerated to 27.3% y/y, which was however mainly in line with the average performance since the beginning of the year. The growth in the segment reflected not only industrial building construction but also residential, office and education facilities construction, the KSH said. Civil engineering output rose sharply by 51.7% y/y due to a low base from the previous year and construction of expressways and railway modernization works.

New construction orders rose at a slowing pace of 15.7% y/y in October. The stock of orders remained up by more than two-fold y/y so we expect the solid pace of construction output growth to continue in the short term. A more visible slowdown might be expected next year when the low base effects will fade, in our view. New building orders rose at a strong pace of 42.2% y/y in October while new orders for civil engineering slowed down to 2.5% y/y. The KSH noted rising new orders for residential buildings, in our opinion showing that the housing programme is finally getting a more visible impact on the total sector performance.

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