Central Eastern Europe Construction Market Report 4Q 2023
Hungary
Local economic indicators
Hungary’s gross domestic product (GDP) in 2Q 2023 showed negative growth of -2.3% (seasonally adjusted; constant prices) in a year-over-year (YoY) comparison, attributed to reduced domestic growth rates as reported by the local statistical office. As anticipated in such a challenging climate, construction’s gross value add (GVA) retracted 6% YoY. The Organisation for Economic Co-operation and Development (OECD) updated its earlier Real GDP forecast for the year to 0% from its previous forecast of 0.9% and increased its 2024 forecast by 0.4 points to 2.5%.
The most recent data available on the Hungarian Central Statistical Office website shows October’s inflation at 9.9%, a hefty improvement from January’s peak at 25.7%. The Eurostat Harmonised Index of Consumer Prices (HICP) has produced similar results, with a peak in January (26.2%) and a steady decline to September’s 12.2%. The OECD forecasts inflation to continue declining in the second half of the year, reaching 11.2% by year’s end, with an overall yearly rate of 19.2%.
Construction materials
Local materials pricing inflation has been fairly predictable over the past twelve months, where clay and concrete (fuel-intensive production) increased in 1Q 2023 when fuel availability was still a major concern but stabilised once it was evident that the winter had been mild and fuel storage was remaining high. Steel, volatile in 2022, has only increased 7% YoY in an economy that has suffered record high inflation rates (average 19.2% annual), showing that steel would have likely retracted like in most European countries had the local inflation rate been lower.
Electricity, gas, steam and air conditioning supply remains significantly high (250%) compared to pre-pandemic pricing, as can be seen in our Industrial Producer Price index summary that shows the change in cost indices month-over-month (MoM), YOY and lastly, since the start of the global pandemic:
Contracts
According to the Hungarian Central Statistical Office, a 23.9% drop (yearly cumulative) in the total volume of stock of orders in construction was seen in August 2023 (corresponding period in the previous year = 100%), while building construction experienced a decline of -0.5% output change in volume August 2023. Though production (and demand) has been decreasing, construction pricing in 2Q 2023 was reported to have increased 17.2% from the same period in the previous year.
Although there appear to be sufficient orders in the short to medium-term, a declining level of new contracts (based on existing portfolios), due to falling demand in several private sectors and restrained public activity, indicates a slowdown will still likely be the driving force for market players during the last quarter of 2023.
Market outlook
The construction confidence indicator remained negative in October at -22.7, largely due to the state of the current order books (-31.3). Insufficient demand remains the greatest cause for challenges in Hungary, reported at 48.8 points in October’s Eurostat construction survey.
Encouragingly, price expectations remain low (7.3) in a climate that has continued to see increased pricing despite decreased demands. Contractors will likely tender work competitively, which will require expert local advice to procure works wisely.
Gleeds recommends revising previously set project budgets to present-day figures based on local statistical information, our own internal data and 4Q 2023 forecasts. Additionally, we advise investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
