Construction sector in spectacular downhill slide

The severe downturn in the construction sector is no surprise, with many factors dragging the sector down. On the demand side, there is a shortage of EU money, the government is cutting back heavily on taxpayer-funded developments after a gross election spending spree, and soaring interest rates due to inflation are hitting project finance and purchasing power hard. Growth stalled in the first half of 2022, and this year's figures show a spectacular decline. Construction output is now well below its pre-pandemic peak.

The gloomy outlook is confirmed by the order books. In May, the volume of new contracts signed fell by 36.9% compared to the May 2022 base, with contracts for the construction of buildings down by 48.5% and contracts for the construction of other structures down by 11.9%. As the previous months had produced similar figures, the volume of contracts in the construction sector at the end of May was already 30.2% lower than a year earlier, with contracts for the construction of buildings down 13.7% and those for other construction down 40.8%. 

Although the construction sector's relatively small share in the Hungarian economy (around 5%) is very limited and its contribution to economic growth is therefore not large, the poor performance increases the chances that the Hungarian economy remained in recession in the second quarter. The sector's contribution to second-quarter GDP growth may be slightly negative on both an annual and quarterly basis, a picture unlikely to change significantly with the June data.

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