Construction activity decreased by 4.6% y/y (wda) in November, steeper than a 3.4% y/y drop (revised from 4.0% y/y) drop a month before, according to preliminary data published by the state statistical institute (INSSE) today. The fall was again mainly triggered by residential construction, where a gloomy outlook discourages new projects. Moreover, the contraction of residential construction was stronger in November than in the previous months, despite the relatively lower base. Hence, the residential construction collapse became clear, ahead of new lending restrictions for households, which would very probably affect home demand.
Looking at the other major segments, non-residential segment resumed double-digit falls, after a meagre rebound in September and October, chiefly sustained by base effects. That segment comprises construction works for industrial parks, office and retail buildings and performed rather well only in H1, backed by the several commercial center expansion projects. At the same time, civil engineering works kept on growing in November, with a stronger pace. That segment is mainly sustained by public investment and its rebound was previously signaled by some increase in the state’s capital spending last autumn. Local media have reported on some building rehabilitation works in October and November, which most probably backed the improvement. Monthly dynamics is also positive, so the upward trend in civil engineering works might keep on for a while, but we doubt that the state will continue spending on those projects, as it struggles to reach the deficit target.
Not surprisingly, construction remained in the negative territory in November, despite a low base. Weak public investment and falling private investor’s interest dragged the sector into contraction, which consolidated in H2’18. Besides, the construction outlook turned gloomy even since the end of 2017, when rates entered an accelerated growth trend. Real estate demand remained rather robust at the beginning of 2018, encouraging some investors to start several new projects. Yet, lacking public investment’s input, construction started deteriorating and it would very likely remain on the fall at the beginning of 2019. Some feeble optimism among office building and industrial parks developers persist though and several already announced a few new projects in those fields this year. That should prevent a more severe downfall in construction, but only a strong rebound in industry, public investment or EU funds absorption could put it on positive track, in our opinion.