The renewed decline in construction output in November, reported today by the Czech Statistical Office (ČSÚ), is an expected disappointment. The blame lies with the cooling of demand from investors, which is caused by macroeconomic influences as well as higher prices for construction work and materials. The bad weather, which according to statistics was the rainiest since 1961, also had a negative impact on the decline. The situation should improve this year and production should pick up.
“The construction sector has long suffered from low investment activity. High financing costs play a role, not least the high prices of construction work and materials, which weak purchasing demand is not willing to accept. With the recovery of economic activity, investment and the gradual reduction of interest rates in January, we expect construction output to return to real growth this year,” said Jan Vejmělek, economist at Komerční banka. According to data from the end of October, he predicted a 1.6 percent year-on-year decline in production. In the first 11 months of 2023, the decline was 2.4 percent.
The situation should improve in the second half of this year, according to KPMG construction expert Josef Kupec. “The construction industry has one of the greatest inertia of all industries, so the fall in demand is only delayed. For civil engineering, the slowdown can be seen in virtually all major segments. Office construction has virtually stopped since the pandemic, new residential construction is affected by the lowest demand in a decade and new logistics construction has returned to its long-term average after a record year in 2022,” Kupec added.
According to Ondřej Šuch, head of external relations at construction firm Skanska, the state’s investment in infrastructure has had a positive impact on the development of the construction sector. However, the volume of regional investment in new buildings and repairs should increase. “While until recently the main cause was the effect of inflation on regional budgets, now the planned government savings have added to the decline. The key information for the whole market will be the amount of money in the State Transport Infrastructure Fund in the coming years and the willingness of the regions to invest and repair even with lower state contributions,” Šuch said.
November’s decline was also to be expected, according to Jiří Nouza, president of the Union of Construction Entrepreneurs. “I don’t expect the figures for December to come as a positive surprise, even taking into account the Christmas holidays, when construction production will more or less come to a halt for at least two weeks,” Nouza said.
According to the Czech Statistical Office, construction output in the Czech Republic accelerated its year-on-year decline. Last November it fell by 6.5 percent, while in October it fell by 0.9 percent. Production in civil engineering, which is the construction of buildings, was down 7.7 percent from the same period last year. Civil engineering construction, which includes the construction of roads or telecommunications and energy networks, fell 3.9 percent year-on-year. On a month-on-month basis, construction output in the country was down 3.8 percent.
Source: ČSÚ and CTK
