Economy 14 February 2025, 8:58am

Hungary's construction sector might have weathered its rock bottom

Portfolio

In December, the volume of construction output was 0.7% higher than in the previous month, slightly improving the overall picture for the sector. However, output was still 4.2% lower than a year earlier, and for 2024 as a whole, the Hungarian Central Statistical Office (KSH) forecasts a 0.4% decline. The sector has shrunk by 6% in two years.

December's 0.7% month-on-month increase does not break the downward trend in construction output. The sector has been producing large zigzags, but overall the last three years have been quite underwhelming.

The construction sector is suffering mainly from the weak domestic economy.

Public procurement has fallen off the books by thousands of billions of euros since 2022, EU funds are flowing very modestly, new housing construction has been at a very low rate for years, and the office market is at the bottom of its long cycle. The sector is not helped by the fact that export investment is plummeting due to weak external demand.

Considering that investment in the national economy fell by double digits last year (by an expected 13-14%), the performance of the construction sector is not tragic. Of course, this is hardly a consolation for the sector's stakeholders, given that output is 4% lower than in 2021, meaning that the construction industry has been in a stagnant business environment for three years. As in industry, it is true that construction has seen two consecutive years of falling performance.

The outlook for this year is not bright either, as business investment remains weak and the scope for public stimulus remains very limited. However, ordering indicators have started to pick up (albeit from a very low base), offering hope that the sector may have reached the very bottom of the pit and is now slowly turning upwards. The volume of contracts in the construction sector at the end of December was 15.7% higher than a year earlier, with contracts for the construction of buildings and other construction up 2.7% and 24.9% respectively compared with December 2023.

With today's data, we can already see that construction output contracted by around 2% on an annual basis in the fourth quarter of last year, and stagnated compared to the previous quarter. As the sector's weight in the overall economy is small, its overall contribution to GDP change was not significant on either an annual or quarterly basis. As the Hungarian economy is known to have exited recession in the last three months of 2024, the partial data available so far confirm that this is due to the growth of the services sectors, alongside the weak performance of the production sectors.

Cover photo (for illustration purposes only): Getty Images