According to analysts, insufficient demand, i.e. investors’ scepticism to start building new projects, is behind the year-on-year stagnation of construction output in August, as reported today by the Czech Statistical Office. The month-on-month increase in the construction industry is the result of stronger construction in the civil engineering sector by almost three per cent. In contrast, civil engineering construction, which includes transportation and industrial infrastructure, fell slightly by 0.3 percent. Investment from public budgets in civil engineering construction does not compensate for the weakening in civil engineering, agreed experts contacted.
“For both holiday months, the picture is not so encouraging. And they need to be considered together as they are traditionally affected by the different timing of holidays each year. And even the aforementioned August month-on-month rise in construction output by two percent was not enough to offset July’s significant 3.7 percent drop,” said Jan Vejmělek, an economist and analyst at Komerční banka.
The Czech construction industry has long been struggling with macroeconomic problems such as high inflation and mortgage lending, as well as expensive building materials and labour shortages. Employment in the construction sector was up 0.6 percent year-on-year in August, with average gross monthly nominal wages rising by almost 10 percent.
“The construction sector continues to lack the additional impetus that would help it onto a growth trajectory. The main obstacle remains the lack of new orders, especially in the case of the private sector, which is not rushing into new construction in times of a stagnant economy. This can be seen in both commercial and residential construction,” said Petr Dufek, Creditas Bank’s economist.
According to Trinity Bank economist Lukáš Kovanda, the construction industry is being weighed down by the weak purchasing power of domestic households caused by inflation and mortgage loans. But they have also resulted in a year-on-year decline in property prices.
“Mortgages are still the most expensive in the Czech Republic in the last 20 years or so. The government’s pressure to consolidate public finances does not allow the weakening in the civil engineering segment, due to the impact of inflation, to be compensated by investments from public budgets in the civil engineering segment. The government does not need to build any ‘hungry walls’ either because the unemployment rate is still very low, so there is no need to stimulate its decline,” Kovanda said.
According to analysts, no improvement in construction output can be expected in the next months of this year. “However, as the end of the year approaches, activity in the civil engineering sector in particular should gradually increase. Overall, after last year’s 3.6 per cent growth in construction output for the whole year, we expect only stagnation this year,” Vejmělek added.
Construction output in the Czech Republic slowed down to 0.2 percent year-on-year in August from 2.1 percent in July. Ground construction, which is the construction of buildings, was more buoyant, while output in civil engineering, which includes the building of roads or telecommunications and energy networks, declined. On a month-on-month basis, construction output was up two per cent.
Source: CTK
