Construction activity increased significantly again by 25.6% y/y (wda & sa) in April, accelerating from 19.0% y/y (revised from 18.7% y/y) in March, according to figures of the INSSE. We remind that construction turned to growth in February, ending a negative trend that persisted since May 2018. Improvement was sustained by residential and non-residential segments, where several big projects started, according to private developer announcements in local media. The acceleration in April was sustained by faster growths in non-residential and civil engineering works, whereas, residential construction segment slightly slowed. Still, growth in all segments remained robust, except for capital repairs where only a modest increase was reported.
Similar to March, the most significant growth rate was in new construction, sustained by new residential and non-residential projects announced in local media at the beginning of 2019. Civil engineering also accelerated significantly despite the relatively higher base, indicating that the state probably started some infrastructure works. Another sign of some rebound in public investment comes from current and capital repair works, which turned to positive dynamics in April. Nevertheless, growths were not spectacular and were partly generated by a very low base. Even so, it is worth mentioning that the state probably no longer had negative contribution to the construction sector in April.
In brief, construction continued to surprise with a strong recovery at the beginning of 2019. Expectations pointed to further deterioration amid a worse economic outlook, monetary tightening, higher income uncertainties and gloomier investor sentiment indicated further deterioration. However, upbeat sentiment among some private developers put the sector on rebound trend. Their projects would probably keep the sector on the rise in the following months, but we doubt that other new ones will start later this year. Some more positive influence could persist from civil engineering and repair works which have strong growth potential, sustained by needs to rehabilitate buildings and transport infrastructure. Yet, the segment heavily depends on government’s capital spending that would be difficult to revive this year, when fiscal constraints are so tight. Also, regional administration budgets were severely affected by the government’s new policy that transfers most of social expenses to mayors. EU funds could represent a solid financing alternative, but authorities proved inefficient in absorbing them so far.