In Czech Republic construction output soars by exceptional 33.6% y/y

The construction sector soared by the exceptionally strong 33.6% y/y in January after downwards revised contraction of 1.1% y/y in December 2017, the stats office said on Thursday. Statisticians noted that along with the publication of results for January 2018, the base period for the short-term statistics such as construction changed with the indices being newly compared to the average of 2015 (it was 2010 before). Statisticians said that although January this and last year had the same number of working days, the weather conditions were incomparable — while January 2017 was significantly below average concerning temperatures, January 2018 was extremely warm with the average monthly temperature of 1.8 C making it the fourth warmest January since 1961. The annual difference in the average temperature was 7.4°C and thus favorable weather conditions enabled builders to carry out all kinds of construction work, the statisticians also said. The output of both the building and civil engineering works expanded briskly in January – by 30.9% y/y (26pps contribution) and by 47.7% y/y (7.6pps contribution). Other data showed that the number of started dwellings jumped by 23.1% y/y in January, while the number of completed dwellings decreased by 7.8% y/y. Building authorities granted 6,045 building permits in January for the approximate value CZK 26.3bn, up by 1.4% y/y in number and by 20.8% y/y in value terms, respectively.

The construction sector rebounded expanding by 1.7% last year after having contracted by 5.9% in 2016, the fourth worst result in the last 16 years. Going forward, it is hardly to expect similar robust paces of expansion of the civil engineering works in the next months unless EU funds drawing improves notably. With regard to the building construction, the high demand for new housing, including due to the still low interest rates and the relatively high availability of bank mortgage loans, coupled with improving labor market, growing incomes and upbeat consumer sentiments, will support it going forward, in our view. However, the mortgage lending affordability may be expected to decrease as the CNB hiked the 2-week repo rate by further 25bps in February to 0.75% and is set to continue with the monetary tightening because of the booming economy and overheating labour market that drive the domestic inflationary pressures further up – the average interest rates on mortgage loans already climbed to 2.28% and banks announced even tighter conditions for housing loans in Q1. A survey of CEEC Research and SGCP released earlier this month showed that Czech construction firms project the sector to expand by 4.3% this year, upwards revised from the 3.5% growth expected in the previous survey.

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