Central Europe Construction Market Report 3Q 2023
Hungary
Local economic indicators
The Organisation for Economic Co-operation and Development (OECD) reports that Hungary experienced -0.3% gross domestic product (GDP) growth in 1Q 2023, the third consecutive negative quarter. The OECD’s recent Economic Outlook, published in June 2023, maintains a stagnant forecast annual growth rate for the year at 0% and cites high inflation and interest rates combined with low confidence as contributing factors.
The overall outlook is set to improve in 2024 and the country is forecasted to produce an overall GDP growth rate of 2.5% in the coming year.
The most recent data available on the Hungarian Central Statistical Office website shows inflation at 20.1% in June, the fifth consecutive month to produce declining rates since 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 steady decline to June’s 19.9%. The OECD forecasts inflation to continue declining in the second half of the year, reaching 11.2% by year’s end.
Construction materials
According to a recent local market update, raw material prices have increased significantly throughout the first half of 2023, rising by 10–15% and peaking mid-year. However, some items have seen price drops, following reduced demand.
Inflation remains the highest in Europe, partly due to the relatively high central bank interest rate of 18% and the government extension of mandatory declaration for exports of construction materials, greatly impacting overall project costs.
Contracts
According to the Hungarian Central Statistical Office, a 12% drop in the total volume of construction was seen in May 2023 (corresponding period in previous year = 100%) while building construction experienced a decline of 13.2%. Though production (and demand) has been declining, construction pricing in 1Q 2023 was reported to have increased 23.8% 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 private and restrained public demand indicates a slowdown should still be the driving force for market players during the second half of 2023.
Market outlook
The construction confidence indicator remains negative in June at -20.5 despite close to no price increase expectations (4.8). Insufficient demand is the greatest cause for challenges in Hungary, reported at 45.6 points in June’s Eurostat construction survey. Contractors will likely tender work competitively which will require expert local advice to appoint works wisely.
Gleeds recommends revising previously set project budgets to present day figures based on local statistical information, our own internal data and 2023 forecasts. Additionally, we are advising investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
