Construction output rose by 25.8% y/y in September, accelerating negligibly from 25.7% y/y in the previous month, the statistical office (KSH) reported. The sector performance was also practically in line with the average growth since the beginning of the year, in our opinion suggesting a generally stable trend in the sector. In seasonally- and calendar-adjusted terms, construction declined by 0.2% m/m in September but the sector maintained a general upward trend since the beginning of 2016 when absorption under the new 2014-2020 programme period started.
The stable growth of construction output in September was on account of the building segment. Building construction output rose at a stronger rate of 22.2% y/y during the month and offset some moderation in the growth of civil engineering output. The growth of building construction was on account of industrial, commercial and dwelling construction, the KSH said. Civil engineering output growth slowed down to still strong 30.5% y/y, representing road, railway and utility projects, it added.
We generally see a downside potential to construction output going forward. Moderating building construction permits suggest that building construction is likely to slow down going forward, in our view. We think the government’s housing programme should maintain some support to the segment but to a more modest extent due to base effects. The government’s progress in allocating EU funds and the slowdown in EU project pre-payments are likely to depress the growth of civil engineering output as well, in our view.
We think that the new orders data confirms our reserved outlook for the construction sector. New construction orders fell by 44.0% y/y in September. Both building and civil engineering new orders were down y/y, respectively by 9.3% y/y and 46.1% y/y. The volume of building orders already fell below its last year’s level at the end of the month.