Optimism in South East Europe
By Sandy Guthrie04 January 2017
An optimistic outlook for construction in South East Europe is being reported, while Eastern Europe’s market is said to be at a standstill, according to EECFA, the association dealing with the construction markets of Bulgaria, Croatia, Romania, Russia, Serbia, Slovenia, Turkey and Ukraine.
In its winter construction forecast, the association said that the optimism in South East Europe followed a 2016 which saw shrinkage in the civil engineering market in the EU countries of the region dragging down the region’s total performance, and that high growth was expected to characterise the total construction market in the next few years.
Each EECFA country of the region predicted expansion of more than 5% for 2017, and a further increase for 2018. Building construction, coming back from low levels, was predicted to expand faster than civil engineering in 2017.
However, EECFA said that Eastern Europe was at a standstill as a whole.
It expected a prolonged decline in Russia. The total construction market was not predicted to expand before 2018, and it said it believed that the growth of the civil engineering sub-market could only alleviate the loss expected in building construction in 2017.
In Turkey, EECA expected the next few years to be somewhat similar to Russia, with some optimism in civil engineering, but slight pessimism in building construction leading to a total market which was not predicted to grow until 2018.
In Ukraine, all-round recovery was forecast. From the current low levels, it expected relatively high growth rates for 2017 and 2018.
Romania’s total construction output growth for 2016 has been revised slightly, up to 3.7% from a summer forecast of 3.4%. This was thanks to more optimistic indicators in the residential segment, a better performance in industrial and logistical construction, and growth in activity in road construction.
EECFA said that 2017 was expected to register growth of 5.2%, against 6.6% forecast in the summer, with civil engineering expected to underperform as a result of an expected lag in the implementation of major projects following the current elections.
For 2018, an expansion of 8.6% was expected in overall construction in Romania, which is up from a projected 6.9% last summer. This rise will be mainly driven by residential construction exceeding growth rates of 10%, it said. The reasons were said to comprise historically low mortgage rates, favourable government policies and a market attracting more speculative development.
Construction output for 2016 in Bulgaria has also been adjusted slightly, with the 18.9% decline predicted in the summer, revised to -18.5%, given a better-than-expected performance in office and industrial segments.
This still massive drop for the year is being caused by civil engineering output dragging down the whole construction sector as a result of the sluggish absorption of EU funds, said EECFA.
It said the economy was indicating positive dynamics driven by private consumption, but added that risks might arise from the stepping down of the government. It predicted that until the next elections in the spring of 2017, the temporary government would probably not take major decisions affecting infrastructure projects.
Output for the construction sector for 2017 has been revised downwards. Growth of 7.8% was expected for 2017, against 14.7% predicted back in the summer, but stronger growth of 9% was projected for 2018 than the summer figure of 5.1%.
For Croatia, the most significant revisions to the forecast were for 2016, as total construction was projected to grow just 5.3%, down from the rise of 6.1% predicted in the summer.
This was said to have resulted from a major downward revision in the office construction segment resulting from considerably greater than expected completions in 2015 and, especially, 2014.
It said this caused far less work to be done on existing projects in 2016 than previously estimated, and also significantly raised the base from which 2016 growth was calculated.
Nevertheless, within the forecast horizon, the construction outlook seemed brighter, it said. Economic growth exceeded previous expectations and was likely to continue to be strong, and EECFA said a stable, competent government had just been formed.
Most importantly, it added, Croatian public and private entities were increasingly familiar with the procedures for obtaining EU funds, which it said would greatly raise the use of these funds.
Construction should record 8.2% in 2017, and 6.1% growth in 2018, it said.
After the 2015 reform in permit procedures, Serbia’s market was said to have entered a boom of permits in almost all construction segments. This laid the ground for expected massive volume increases in 2016, with an even more optimistic outlook for the forecast.
Predicted construction performance for 2016 has been adjusted to 9.4% growth, from a 12.1% rise in the summer, whereas 11% expansion is now expected for 2017, compared to a forecast of more than 12.3% in summer.
For 2018, the outlook has been substantially revised upwards with 13% growth against the summer figure of 5.3%. EECFA said that the brighter forecast came from the fact that Serbia had massively decreased state deficits – from 7.5% in 2012 to 1.5% in 2016 – suggesting an easing of austerity and increased public investments from 2017 on. It said this would certainly provide another boost for growing construction outputs.
Slovenia’s construction output was forecast to decrease by 8.4% in 2016 – in line with EECFA’s previous forecast.
It said the reason for the fall off was a decrease in civil engineering output in 2016. This was said to derive from a reduction in available public financing for investments, as a result of less availability of EU financing at the beginning of the new financial period.
However, EECFA felt the underlying positive trends, especially in residential construction, would lead to the increase of overall construction output by 4.9% in 2017, and a much larger increase of 14% in 2018.
The 2018 forecast was more optimistic than the previous one, but EECFA said the increase would depend on major investments in civil engineering, especially the expansion of the rail network forecast to start in that year.
Russia’s economy this year has been in a difficult situation, according to the association, with internal and external conditions alike having been “complicated”. EECFA said that this was likely to continue in the medium term.
It said this would impact directly on the construction segment, which in 2016 posted the biggest downturn in business activity in the last ten years.
However, total construction output forecast for 2016 was changed to a minor drop of 1.1% in the sector, from a slump of 5.3% forecast in summer. The explanation was that civil engineering seemed more optimistic now, and housing seemed less pessimistic than in the summer.
The construction projection for 2017 remained the same, at -1.7%, while for 2018 it has been revised upwards, from a rise of 1.2% to 2% growth.
In Ukraine, following two years of recession, 2016 showed growth in the economy. Key drivers in the course of the year have been trade and construction. EECFA said that construction had survived on the back of the residential sector.
It said increased optimism had led to upward revisions in construction outputs. For 2016, a 7.3% increase was predicted, up from the 5.1% rise forecast in the summer, while for 2017, the 4.6% upturn was changed to 5.9%, and for 2018, an even bigger upswing was expected – 7% now, up from 4.7% in the summer.
EECFA said that while Turkey’s economy had been shaken as a result of a failed coup attempt last July, building started and completions in the July to September period had not been particularly affected.
In 2016, construction market development was expected to record a bigger rise at 3.9% than the summer figure of 2.4%.
It added that for 2017, growth should be about 0.5%, rather than the 1.6% of the summer forecast, and the year after should see a decline of 1.7% compared to the small rise of 0.1% predicted in summer.