More dismal news on the Hungarian construction industry

The construction sector has been on a downward trend since the beginning of 2022, with June's performance the lowest in almost two years. The sector is being hit by several factors at once. The state has halted a lot of development after the pre-election spending spree last year, and the stagnation of EU funding exacerbates this trend. Falling domestic demand and shrinking real incomes are also weighing on the sector, while high interest rates are making both the supply and demand sides of the credit-dependent sector unviable.

Construction output in raw data was 3.8% down on a year earlier. Among the main construction groups, output of construction of buildings rose by 7.5% and that of other construction fell by 20.5%. This is another indication that production is being dragged down mainly by a lack of government orders. Order books data also confirm this: the volume of contracts in the construction sector at the end of June was 26.1% lower than a year earlier, including 2.0% lower for buildings and 40.9% lower for other construction.

Although the value of contracts in June (after six months of steady decline) was higher than a year earlier, this is mainly due to the spectacular break in orders since last summer, meaning that the base effect is very strong.

The outlook is still not bright. The impact of the stalling of major public projects and the outlook for EU funds is hardly offset by the slow decline in interest rates. This year will therefore be a very bleak one for the sector. The second quarter GDP growth data due out tomorrow is also expected to drag down construction, with the meagre consolation that the impact may be modest given the sector's small economic weight.

Cover photo: Shutterstock