Construction output in the Czech Republic fell 3.8 percent month-on-month last November, the most among the 16 EU member states measured. Year-on-year, construction output in the Czech Republic fell by 6.5 percent, placing it third in the imaginary ranking of countries with the biggest decline. On average, construction output across the EU fell by one per cent month-on-month and 2.2 per cent year-on-year. According to analysts, the decline is due to the unprofitability of new construction in the Czech Republic, weak demand and slow construction management.
After the Czech Republic, Germany recorded the biggest drop, by 2.9 percent, and Hungary by 2.6 percent. In the year-on-year comparison, Hungary was ahead of the Czech Republic with a 12.8 per cent decline and Finland with a 6.9 per cent drop. On average across the Union, civil engineering, which is the construction of buildings, fell by 1.1 per cent month-on-month and 2.5 per cent year-on-year. Civil engineering, which includes the construction of roads or telecommunications and energy networks, fell by 0.2 per cent month-on-month as well as year-on-year.
Despite the data, Creditas Bank economist Petr Dufek said the Czech Republic is not the worst performer in the construction sector among all EU member states in the longer term. Month-on-month results can be affected by many different factors, such as bad weather. According to the Czech Statistical Office, last year saw the highest November rainfall since 1961.
As the economy cooled, Dufek said, both koruna and euro loans became more expensive, which led to a cyclical downturn in construction. “In terms of comparison with Germany, it is only a little better off. This is both on a month-on-month and year-on-year basis, and relative to the results achieved in the last year before the covid. The shortfall in real output in Germany and in the Czech Republic is similar. While in the Czech Republic the construction sector is about 6.6 per cent below the 2019 level, in Germany the gap is a wide 5.7 per cent,” Dufek added.
Although in most sectors the Czech Republic is interconnected with the German market, this is not the case for the construction sector, according to Datarun Platform data analyst Petr Bartona. On the contrary, the drop in production in Germany should free up capacity for machinery and material suppliers in the area, so more construction could take place in the Czech Republic. But obstacles to this include the least digitised and slowest construction process in the EU and high interest rates. According to Bartona, Hungary has the highest rates nominally, but in real terms they are the highest in the Czech Republic, given inflation.
BH Securities economist Štěpán Křeček also agrees. The situation in the Czech Republic should improve as the Czech National Bank continues to cut interest rates. This will increase the volume of funds going into the real estate market. Real estate prices should thus rise significantly again, which will motivate investors to launch postponed projects.
According to Eurostat, housing prices in the Czech Republic rose slightly by 0.3 per cent in the third quarter of last year, half a percentage point less than the average among EU member states. Year-on-year, housing prices in the Czech Republic fell by 3.5 percent, 2.5 percentage points more than in the EU. Analysts have previously said that the reason for the slower year-on-year growth and the larger year-on-year decline in prices relative to the EU is the cooling of the domestic property market caused by higher mortgage rates than the European average.
Eurostat does not request monthly data on construction output from Estonia, Greece, Croatia, Cyprus, Lithuania, Latvia, Luxembourg and Malta. Denmark can then supply data with a delay and Ireland is only obliged to supply quarterly averages. Italy supplies monthly data to Eurostat, but only on a confidential basis.
Source: Eurostat and CTK
