Hungary: Construction output growth slows down to 40.1% y/y in April

Construction output growth decelerated to 40.1% y/y in April, down from the exceptionally strong 67.6% y/y growth in the previous month, the statistical office (KSH) reported. The slowdown was not surprising, given it was clear that the strong growth from March could not be sustained. Output growth in April was still generally in line with the average since the beginning of the year and remained quite high. In seasonally- and calendar-adjusted terms, construction output fell by 3.8% m/m, contracting for the second month in a row. The overall trend of the sector remained on the upside but we consider it likely that the slowdown is likely to continue due to expiration of the preferential VAT on housing, reduction in the pace of EU fund absorption and high base effects.

Both the building and civil engineering segments contributed to the slowdown in the non-adjusted construction output growth in April. Building output moderated to a still high 34.3% y/y growth during the month. The segment was supported by investments in industrial, residential and office buildings, the KSH said. Civil engineering output rose at a slowing rate of 47.9% y/y for the month and was as usual on account of road and railway infrastructure construction.

New construction orders fell by 4.4% y/y in April and seemed to be on a gradual downward trend in the past months. The data reinforces our expectations for some weakening in the construction sector performance going forward. We think the sector should remain in positive territory though because of government investments and still low real interest rates. The stock of construction orders, however, fell by 6.0% y/y as of end-April. This was because of the civil engineering segment and we explain it with the front-loaded EU fund absorption. New civil engineering orders were down by 29.0% y/y in April while new building orders rose by 19.0% y/y. Demand for building construction reflected high-value industrial building contracts as well as educational and sport facilities, the KSH said.

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