Analysts: December easing of construction measures did not help

Prague – The partial easing of anti-epidemic measures in December did not help construction. The spring expectations that this sector would be a driver for economic recovery were not confirmed. Analysts that CTK contacted today stated this. In December, construction decreased year-on-year by 12.4 percent, the most in the entire year. For the whole year, it fell by 7.7 percent, according to the Czech Statistical Office (CZSO). Analysts believe that the decline will continue this year, and a partial recovery can be expected not before the second half of the year.

"In December, the decline in construction deepened from 8.4 percent in November. Compared to the rest of the economy, the December easing of anti-epidemic measures did not help construction in any way. A significant decline is still evident in the area of building construction, where the year-on-year decline in production deepened to 16.5 percent," said Martin Gürtler, an analyst at Komerční banka. According to him, building construction, particularly the construction of apartments, offices, or industrial halls and warehouses, suffers primarily from a significant degree of uncertainty regarding further developments, as many construction projects require a longer time to complete. Companies are currently not investing, which is also reflected in lower demand for construction work. As he further stated, the outlook for construction remains rather pessimistic for now, just as it is for the entire economy; a significant recovery in construction production can be expected only in the second half of the year.

"December only confirmed the grim situation in the construction sector, which experienced a decline in production of 7.7 percent last year, the worst result since 2010. The early-pandemic hopes that the sector could support the Czech economy during the decline in export demand in industry were quickly dashed. Ultimately, the pace of production decline in both industry and construction has almost aligned," added Pavel Sobíšek, an analyst at UniCredit Bank. He also noted the disturbing loss of momentum during the year, as in the last quarter, construction declined by more than a tenth. For this year, he expects a reduction in production by two percent.

Analyst Petr Bartoň from Natland stated that construction is partially aided by engineering projects, particularly transport infrastructure. This sector stagnated year-on-year in December, while for the whole year it fell by one percent. "However, the situation in building construction is even worse, as the construction of apartment buildings dramatically decreased. They are a more efficient way to provide the necessary apartments to the market than building family houses. Last year, 25 percent fewer apartments were started in apartment buildings than in the previous year," Bartoň reported.

According to Lukas Kovanda, an analyst at Trinity Bank, construction is expected to further decline this year due to the ongoing unfavorable situation and the significant inertia of the entire sector, by about five percent. "It will only return to growth next year, partly due to a notably reduced comparison base," Kovanda added.