An exceptionally weak figure for construction in November

HUNGARY - In Brief 15 Jan 2024 by Istvan Racz

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Construction output fell by 2.6% mom, 12.8 yoy in November, on seasonally and day-adjusted basis, of course. This looks exceptionally weak, after 0.3% yoy positive growth in October and -1.1% yoy in Q3. Importantly, the bulk of this weakness is conveniently explained by a major negative base effect, as in November 2022, +12% mom and +5.2% yoy was reported, and that represented a massive spike in those days, a one-time phenomenon within a series of weak monthly figures. However, the new data for November is certainly about more than just the reversal of an outstandingly good number twelve months earlier. A quick look at the fixed-basis chart below is sufficient to see that the construction sector continues to follow an explicitly downward trend: The factors behind the latter include mainly last year's sharp restrictions on the government sector's fixed investment spending, which fell by 8.6% yoy in nominal terms in January-September 2023, in addition to the running out of the long-standing housing construction uptrend, also last year. The latter started with a sharp reduction of transaction numbers on the housing market, and then it continued with some retreat by the prices of used apartments, to be followed by a halt to a multi-year boom of new apartment prices in Q3 2023, to which developers normally react with stopping or slowing down new project starts. What can turn around this slump eventually, and this is unlikely to happen very quickly, is a recovery of households from their contractionary financial state and mood, in addition to the normalisation of the government's investment budget, not least on the back of the newly released development funds from the EU, an...