CONSTRUCTION has been one of the hardest hit sectors during the ongoing economic turbulence. And with the fall of the government in Slovakia, the European sovereign debt crisis and more negative economic news recently, industry players expect that the sector could continue to contract in 2012 as well.
During 2011 construction companies generated an aggregate output of €5.506 billion. Compared with 2010 this represented a decline of 1.7 percent, the Slovak Statistics Office reported on February 8. Even the surprisingly high year-on-year growth reported in December was not big enough to compensate for declines in previous months.
Construction output in December was €500.3 million, up 6.4 percent compared to the same month in 2010. After seasonal adjustment it increased by 3.8 percent compared with November 2011.
Analysts at UniCredit Bank Slovakia see the slow start to winter as being behind the December growth in the construction sector, which exceeded the bank’s expectations.
Domestic construction output increased by 6.3 percent y-o-y to €488.5 million in December, making up 97.6 percent of the total volume. Within domestic output, new construction including modernisation and reconstruction made up 79.2 percent of the output. Work carried out by construction companies abroad rose by 10.5 percent y-o-y to make up 2.4 percent of the total output. For all of 2011 output abroad grew by 37.2 percent to €203 million, while annual domestic production slipped by 2.7 percent to €5.3 billion.
Construction companies confirm that they have compensated for a drop in orders in Slovakia by working abroad. Hronstav, Doprastav and Chemkostav all confirmed to the Hospodárske Noviny that they were sending people to work on projects abroad and Zsolt Lukáč, the president of the Association of Construction Entrepreneurs of Slovakia, confirmed this trend too.
“The increase in foreign orders accounted for 40 percent over the last year,” Lukáč said, as quoted by Hospodárske Noviny in late January.
However, general expectations for the sector remain bleak. The quarterly analysis elaborated by CEEC Research in cooperation with KPMG, based on 100 interviews with representatives of leading construction companies in Slovakia, indicates that the sector expects the slump to continue in 2012, with a forecast contraction of 7.1 percent.
“Moderately optimistic expectations from the first half of 2011, that the decline in construction output might halt, have not materialised,” said Ľuboš Vančo, managing partner at KPMG Slovensko, as cited in the survey published in November. “With the fall of the government, the European sovereign debt crisis, and other negative outlooks the construction industry expects another decline in 2012.”
The results of the latest quarter analysis show a noticeable growth in the negative expectations of directors of construction companies with regards to the development of the Slovak construction sector in 2012. This negativity results especially from concerns about the future development of Europe’s economic crisis and its impacts on Slovakia’s economy. The directors are also afraid of a halt or slowdown in investments by the state as a consequence of the fall of the government and possible cuts and savings in the investment strategy of the next government, to be formed after the March 10 elections.
In spite of all these negative factors and uncertainty, Dagmar Blahová, the head of the department of construction, commerce and services at the Statistics Office, regards the forecast drop of 7 percent as very pessimistic and instead expects construction output to decrease only moderately or even to remain unchanged in 2012.
Expectations for 2013 also remain negative. Referring to the unclear outlook and the anticipated development of the economic crisis, directors of construction companies in Slovakia said they did not expect significant recovery in Slovakia’s construction sector next year. Instead, the sector should stabilise and the decline from previous years will only halt, they predicted.
Expectations in neighbouring countries are somewhat gloomy too, with the exception of Poland and, to a lesser extent, Hungary.
“The results of a similar survey in the Czech Republic in October 2011 show a quickly deteriorating outlook there too,” the analysis reads. “Directors of Czech construction companies predict a contraction in the sector of 8.3 percent in 2012 and an additional 1.1 percent in 2013.”
The results of interviews with directors of companies in Poland, conducted in March 2011, indicated that they expected the construction sector there to continue growing in 2012. Poland was the only country in the Visegrad Group of four central European states that has not registered a decline in its construction sector at any point during the entire global economic crisis. Hungarian construction companies said 2012 could be a year of stabilisation after six years of continual contraction.
