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Construction output increased in March, but industrial production declined

Analyst sees the strong basic effect behind the recent developments.

Construction of the Višňové tunnel. (Source: TASR)

Compared with March 2017, Slovak construction output increased by 0.6 percent to €368 million. After seasonal adjustment, it was up by 2.3 percent, compared with the previous month.

In March 2018, compared with March 2017, output realised by domestic construction companies decreased by 0.9 percent to €345.1 million. Its share in total construction output, year-on-year, decreased by 1.4 percentage points to 93.8 percent, the Slovak Statistic’s Office (ŠÚ) wrote on May 11.

The development of domestic output was affected by the decrease in work by 1.7 percent on new constructions, renewals and enhancements and in repair and maintenance work by 0.6 percent. Within the structure of domestic output, the share of new constructions, renewals and enhancements represented 72.7 percent (0.6 percentage points lower than in March 2017). The share of repair and maintenance work represented 25.3 percent. In terms of output specification, the volume of work on the construction of buildings dropped by 5.6 percent and the volume of civil engineering work increased by 11 percent.

Non-domestic construction output carried out by construction companies increased by 29.6 percent, year-on-year. Its share represented 6.2 percent of the total volume of output.

On average, over the first three months of 2018 compared with the corresponding period of 2017, construction output increased by 7.7 percent and amounted to €932 million.

Industrial production

In the same month, industrial production decreased by 2.3 percent, y-o-y. This development was allegedly affected by a decrease in electricity, gas, steam and air-conditioning supplies of 5.1 percent, mining and quarrying by 3.8 percent and in manufacturing by 1.9 percent.

In terms of the specific groupings of the industrial sectors which contributed most to the total production development, the most significant drop was recorded in the manufacture of coke and refined petroleum products of 32.3 percent. Electricity, gas, steam and air-conditioning supplies dropped by 5.1 percent, manufacture of computer, electronic and optical products by 13.5 percent, manufacture of transport equipment by 2.2 percent and manufacture of chemicals and chemical products by 11.9 percent. Total production was affected mostly by a growth in the manufacture of basic metals and fabricated metal products except machinery and equipment by 4 percent, manufacture of basic pharmaceutical products and pharmaceutical preparations by 33.6 percent, manufacture of food, beverages and tobacco products by 3.3 percent, manufacture of textiles, apparel, leather and leather products by 4.8 percent and in the manufacture of wood and paper products and printing by 3.6 percent.

After seasonal adjustment, industrial production increased by 0.3 percent in March compared with February 2018.

Since the beginning of the year 2018, overall industrial production increased, year-on-year, by 0.2 percent. Production dropped in mining and quarrying by 13.8 percent and in electricity, gas, steam and air-conditioning supplies by 9.3 percent.

Analyst sees basic effect behind the development

Industry lagged slightly behind expectations in March, macroeconomic analyst of the UniCredit Bank Slovakia, Ľubomír Koršňák, wrote in a memo. Despite increasing slightly compared to February, it fell 2.3 percent against last year, due to an extremely strong comparative basis. Almost half of the sectors of the manufacturing industries recorded a decline compared with 2017.

After a brief break, metallurgy was again the main driver in March, with the pharmaceutical industry marking the biggest dynamic of y-o-y- growth. Low-tech branches – food-processing, textile and clothes, wood-processing and paper industries recorded a growth of around 3 to 5 percent in this period.

Construction also remained low in March, due to the basic effect.

Outlook

The March figures for construction and industry create a mild risk for the prognosis of Slovak economic growth in the first quarter of 2018, Koršňák notes, adding that considering this outlook the mood in industry remains quite good, and it is expected to continue to grow in the upcoming months, with an even bigger trajectory estimated for the end of this year, due to Jaguar Land-Rover. The automotive industry will again gradually become the main driving force of Slovak industry, with engineering remaining positive thanks to European investment demand. Metallurgy, however, as a branch that shows in advance the trends to soon appear in the whole of industry, may face a decline (in H2) due to the upcoming culmination of the economic cycle.

The construction sector will still draw from the subsiding boom in building construction, while new construction permits suggest that this segment is nearing its culmination and especially in H2, the slow-down of its dynamic is expected. Year-on-year decline, repeated annually, cannot be ruled out, either. The ending of growth in building construction may be fully compensated for by the re-start of infrastructure construction. Risks are high in this sector, as deadlines are often postponed. The much-awaited full launch of the construction of the Bratislava ring-road, slated for March, has been slightly delayed as well.

The construction sector is expected to keep its growth trajectory but the dynamic of its growth could yet show greater volatility, according to Koršňák.

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Topic: Industry


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