Europe Construction Market Report 1Q 2024
Hungary
Local economic indicators
Gross domestic product (GDP)
The Hungarian Central Statistics Office (HCSO) flash report shows that GDP in 4Q 2023 exhibited growth of 0.4% (seasonally adjusted; constant prices) in a year-over-year (YoY) comparison and no change when compared to 3Q 2023. Figures for 2023 indicate a 0.8% decline in GDP compared to 2022. This downturn has been attributed to falls in industry, construction and market services.
As reported by Eurostat, the gross value added of construction (GVA) experienced an upturn on the previous quarter of 2.7%; however, it remains down 2% YoY. The Organisation for Economic Co-operation and Development (OECD) posted its latest GDP forecasts, which now stand at -0.6% for 2023 and 2.4% for 2024.
Inflation
The latest data released by the HCSO indicates a sustained decline in inflation, dropping from its peak of 25.7% in January 2023 to 3.8% in January 2024. Although still waiting on figures for January, the Eurostat Harmonised Index of Consumer Prices (HICP) aligns with this trend, reporting a rate of 5.5% in December. The OECD's latest forecast in January projected an average inflation rate of 17.5% for 2023, with a substantial reduction to 4.6% anticipated for 2024.
Construction materials
Local material pricing inflation has maintained a relatively stable trend throughout 4Q and the entirety of 2023, with no sector recording a figure exceeding 11% in a country where the average inflation rate for the year is anticipated to be 17.5%.
Notably, the inflation rate in electricity, gas, steam and air conditioning supply has significantly surpassed all other sectors, reaching nearly 250%, and remains problematic given its YoY price recovery of only 5.6%.
See the following table for month-over-month (MoM), YoY and indexed pricing inflation:
Market outlook
In November 2023, Hungary equalled its lowest construction confidence indicator score since May, -23.7, however, it showed an improvement of 2.6 points in the latest figure for January, now at -21.1. This increase was prompted by an improvement in employment expectations from -7.5 in December to -3.5 in January, which would have provoked a larger upwards movement if not for the worsening of the order book figure from -34.6 to -38.7 over the same period.
Among the challenges confronting the Hungarian construction market, insufficient demand remains the most significant, showing only a one-point improvement between December and January, with a score of 45.9. Labour shortages have shown signs of improvement, with the reported figure decreasing from 31.1 in December to 23.9 in January, marking the lowest figure since April 2020 (13.4).
According to evaluations by experts in our local office, the Hungarian construction market experienced exceptional inflation of 30% in tender prices in 2023, with a greatly reduced figure of 10% expected for 2024.
Gleeds recommends revising previously set project budgets to present-day figures based on local statistical information, our own internal data and 1Q 2024 forecasts. Additionally, we advise investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
