Total construction output growth slows down in Estonia

Total construction output growth slowed down significantly to 2.0% y/y in Q1, from 15.3% y/y in Q4, according to figures of the statistical office, published on Friday. The deceleration was broad-based, driven by both the construction of buildings, where output slowed down to 1.7% y/y and also by civil engineering works, where output decelerated to 2.8% y/y. In Estonia alone, construction dropped by 2.3% y/y, again broad-based. The construction of buildings (including residential and non-residential) fell by 3.1% y/y, while civil engineering works saw their output slowed down considerably to 0.8% y/y.

All in all, the deceleration was largely expected given that the number of building permits issued in 2018 dropped by 10.0% y/y. As previously reported, the Bank of Estonia argued earlier this year that growth in the construction sector, which has been a key driver of growth, is showing signs of a slowdown. Looking ahead, we expect that demand for residential buildings will continue to be supported by wage growth and employment, in addition to favorable lending conditions for households. On the other hand, civil engineering works are likely to be affected by the expected stabilization in absorption of EU funds.

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