BMI View : We expect slower growth in Hungary's construction sector from 2016 onwards as the government's stimulus for the infrastructure sector comes to an end. EU funding will continue to support the sector - particularly strategic road and rail projects, although we caution the EU probe into cartel allegations in road construction could damage relations with a key financier in the EC .
Strong growth in Hungary's construction sector is not due to last long term, as we expect a rising fiscal deficit to necessitate a drawback in public investment. Between 2016 and 2025, we expect construction sector real growth to average 2.9% per year.
Latest Updates And Structural Trends
Civil engineering projects have been the primary drivers of the construction sector rebound, with road and railway projects in particular, driving the civil engineering growth. However, in November 2015, civil engineering works decreased by 8.0% year-on-year (y-o-y), construction of buildings increased by 10.2% y-o-y and the volume of construction output decreased by 0.2% y-o-y (Hungarian Statistical Office, January 2016).
A total of 962 development projects co-financed by the EU are currently delayed, business daily Vilaggazdasag published on November 4 2015. Citing cabinet office information, the paper stated that at the end of Q315 the state sector and local councils were HUF150bn (EUR480m) behind schedule in taking up EU financing. The state body responsible for Hungary's schools had more than 80 projects behind schedule and the National Infrastructure Development Company had 50 delayed projects. Budapest Transport Centre (BKK) projects were also significantly behind schedule. These delays caused a downgrade to our forecasts for the growth of the construction sector, resulting in real growth of 1.9% y-o-y in 2016.
The Hungarian government halted the construction of the M4 motorway's section connecting Abony and Fegyvernek in March 2015, following suspected cartel activity. In April 2015, the EC raised issues pertaining to alleged cartel activity. In November 2015, the government also halted the construction of the M4 motorway's section connecting Szolnok and Budapest, following the EC's concerns over its high cost (Budapest Business Journal, 2015).
We expect growth in the Hungarian railways sub-sector to outpace that in the roads and bridges sub-sector. Although a lot of financing is coming from China, more locally EIB is also forthcoming with financing.
HUF1,000bn (EUR3.2bn) of EU funding is available for railway development by 2020 to finance the modernisation of 800km of tracks that belong to the Trans-European Transport Network.
On September 30 2015, the EC adopted the 2014-2020 cross-border cooperation programme between Slovakia and Hungary. With EUR146mn from the total amount of EUR172mn provided by the European Regional Development Fund, the programme aims to boost employment and investment for sustainable transport in the Hungarian-Slovak region (EC, September 2015).
On October 16 2015, the Hungarian Foreign Minister for Economic Diplomacy announced a total of EUR100mn will be allocated to Hungary-Austria cross-border transport development in the next seven years.
Russia's current financial difficulties, caused by its economic recession, are expected to result in the country cancelling new loans. However, the Hungarian government's commissioner for the upgrade of Hungary's sole nuclear power plant in Paks, Attila Aszodi, said on January 21 2016 that this project will not be affected (Daily News Hungary, 2016).
|e/f = BMI estimate/forecast. Source: BMI Research, Hungarian Central Statistical Office|
|Construction industry value, HUFbn||994.02||1,156.43||1,214.25||1,259.66||1,339.02||1,428.06||1,517.66|
|Construction Industry Value, Real Growth, % y-o-y||6.60||13.60||5.00||1.94||3.40||3.25||2.87|
|Construction Industry Value, % of GDP||3.3||3.6||3.7||3.7||3.7||3.8||3.8|
Hungary's score in BMI's Infrastructure RRI has increased slightly this quarter to 60.3 out of 100, compared to 60.0 in the previous quarter, while the regional average is 61.5.
Hungary's Industry Rewards score is its poorest showing in BMI's Infrastructure RRI, at 50 it is slightly lower than the regional average of 50.2.
Although Hungary has a competitive and open infrastructure market, the lack of transparency in the tendering process has affected its market image. Compared to the regional average of 67.1, Hungary scores 65 in terms of Industry Risks.
|Risk/Reward Index||Rewards||Industry Rewards||Country Rewards||Risks||Industry Risks||Country Risks|
The Hungary Infrastructure Report features BMI Research's market assessment and forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The report analyses the impact of regulatory changes and the macroeconomic outlook and features competitive intelligence on contractors and suppliers.
BMI's Hungary Infrastructure Report provides industry professionals and strategists, sector analysts, investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the Hungarian infrastructure and construction industry.
- Benchmark BMI's independent infrastructure industry forecasts for Hungary to test other views - a key input for successful budgetary and planning in the Hungarian infrastructure market.
- Target business opportunities and risks in the Hungarian infrastructure sector through our reviews of latest industry trends, regulatory changes and major deals, projects and investments in Hungary.
- Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering infrastructure and construction, regulatory changes, major investments and projects and significant national and multinational company developments. These are broken down into construction (social, commercial and residential), transport (roads, railways, ports, airports, etc), and energy & utilities (powerplants, pipelines and so on).
Industry SWOT Analysis
Analysis of the major strengths, weaknesses, opportunities and threats within the infrastructure and construction sectors and within the broader political, economic and business environment.
BMI Industry Forecasts
Historic data series (up to 2012) and forecasts to end-2024 for all key industry indicators, supported by explicit assumptions, plus analysis of key developments in the market and risks to the main forecasts. Indicators include:
Construction: Industry value (USDbn); contribution to GDP (%); total capital investment (USDbn); real growth (%).
Construction industry real growth forecasts (%) and industry value (USDbn) forecasts for industry sectors are split into Residential and Non-residential and Infrastructure sectors. Where the data is available for particular countries the infrastructure is further broken down into indicators for the transport subsectors of roads, railways, airports and ports and the energy and utilities sub-sectors of power plants and transmission grids, oil & gas pipelines and water infrastructure. This dataset is unique to the market.
The reports also include analysis of latest projects across the infrastructure sectors (transport, utilities, commercial construction).
BMI’s Infrastructure Risk Reward Index
BMI’s Risk Reward Index provides investors (construction companies, suppliers and partners) looking for opportunities in the region with a clear country-comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points. These provide indices of highest to lowest appeal to investors, with each position explained.
An assessment of the competitive landscape and key challenges to entering the market. Details of the largest companies active in the sector across the sub-segments of the industry, including the key financial figures from some of the largest players in the sector.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Infrastructure reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.