Construction output decreased by 8.9% y/y (wda) in August, easing from a 14.7% y/y drop (revised from 14.9% y/y) a month before, according to preliminary data published by the state statistical institute today. The fall was again mainly fueled by residential construction where pessimistic demand prospects discourage new projects. In addition, the high base would probably keep that segment on a steep downward trend by the end of the year, even though several residential projects started this summer and some others were announced in the autumn. Non-residential segment also continued decreasing in August, after entering negative trends in July for the first time this year. That segment comprises construction works for industrial parks, office and retail buildings. It performed rather well only in H1, probably backed by the several commercial centers expansion projects. On the positive side, civil engineering works rebounded in the period, following a moderate decrease in July. Civil engineering was in fact the most important factor behind the fall softening in construction in August.
In the breakdown by structural elements, only capital repair works increased by 13.2 y/y in August. Like in the previous period, the improvement was perhaps mostly fueled by the low base as the state keeps investment low. Meanwhile, the fall of new construction works was significantly stronger in August, in line with worsening in residential construction segment. On top of that, the current repair works also kept on decreasing, after some positive signs in May and June.
Overall, construction remained on the fall in August, even if the contraction eased. Weak public investment and decreasing interest of private investors dragged the sector into a double-digit collapse, especially in July and August. The high base, rising rates and economic activity slowdown would probably continue to affect the sector’s developments in 2018. Only a strong rebound in industry, public investment or EU funds absorption could put domestic construction on positive track this year, in our opinion. Yet, those factors are improbable when looking at economic and fiscal developments. Therefore, we would not count on construction to come with positive contribution on economic growth this year.