Analysts: Public contracts and EU funds will drive construction

Prague - The driving force of construction production will continue to be primarily public contracts and money from European funds. Builders are already being helped to bridge the period of decline in commercial construction. This follows from findings by ČTK among analysts after today’s announcement of construction production results for January. According to the Czech Statistical Office (ČSÚ), construction output in January, in constant prices, decreased by 11.1 percent year-on-year.
The result for January was expected, according to the president of the Association of Entrepreneurs in Construction (SPS) Václav Matyáš, given the developments in December and the number of contracts. Ground construction, which also includes apartment construction, continued to decline, while the building of transport infrastructure continues to thrive. "Construction, just like in previous months, does not present a unified picture," noted ČSOB analyst Petr Dufek.
"A negative impact is manifested by the reduction of investment expenditures by companies and the cooling demand from households for new apartments, as well as a significant influence from the deterioration of access to loans and mortgages, whose growth continues to slow down," said Komerční banka analyst Kamila Fialová. According to analysts and builders, the weather, which was colder in January than a year earlier, also played a role in the decline of the industry.
Although construction companies will be able to significantly benefit from public contracts and EU funds this year as well, according to the Komerční banka analyst, the entire industry is expected to see a decline of one to two percent for the year 2009.
SPS has previously presented a plan to revive demand for new apartments. Together with developers, they propose, for example, a temporary reduction of the value-added tax on apartment construction to five percent, or possibly its complete abolition. "This would be a measure that could increase demand," Matyáš said to ČTK today.
The real estate company Ekospol estimates that over 30,000 apartments should be built in Prague in the coming years. Approximately half of them are reportedly already under construction, while the other half remains only on paper. However, if demand does not recover, it threatens that up to 50 percent of the planned projects will not be built at all.
According to Eurostat data, construction output in December 2008 in the EU 27 decreased by 6.7 percent year-on-year after adjusting for the number of working days.