Abstract
Since the last quarterly report, Hungary’s infrastructure outlook has
worsened further, reflecting the
economic slowdown that is sweeping the
globe in the wake of the credit crisis. Using BMI’s new
methodology
for forecasting, we now expect Hungary’s construction industry to be
worth HUF799.4bn
(US$4.08bn) in 2009. That’s US$1bn less than we
forecast only one quarter ago. In percentage terms,
that’s 13.26%
less than in 2008. After annual contractions of 8.36% in 2008 and 11.86% in
2007, the
booming Hungarian infrastructure sector has become a distant
memory. BMI now expects another year of
contraction in 2010, of 3.13%,
before construction growth resumes in 2011. Only three months ago, we
expected growth to resume in 2010.
Construction accounts for just over 3%
of Hungarian GDP. But the rest of the economy isn’t doing any
better. BMI expects GDP to contract by 3.4% in 2009, more than the
government’s own forecast for a
2.5%-3.0% contraction, and the risk
is that the contraction will be even more severe. Even in 2010, BMI
expects only the slightest economic growth of 0.1%. Unemployment already crept
up to an average
monthly rate of 8% in the final three months of 2008 and
many analysts expect that figure to increase as
employers respond to
worsening conditions.
If there is a bright spot in Hungarian
infrastructure, it’s in the civil engineering works that are
continuing,
albeit at a much slower pace, despite the slowdown. But
government borrowing is starting to cause
worries. The central bank has
warned of the dangers of too much debt. If the downturn continues –
and
every week seems to bring a postponement in the timing of global
recovery – the government is going to
be hard pressed to do anything
that can protect infrastructure activity from the general economic
climate.
Hungary has already turned to the IMF for loans to help it
through the crisis and must now work to meet
IMF conditions on deficit
spending. Standard & Poor’s warns that the country faces a long,
painful
period of adjustment. Hungarians’ exposure to foreign loans,
especially denominated in Swiss francs,
makes the country extremely
vulnerable. The direction of inflation should argue for monetary easing,
but
the rising government debt and international uncertainty may force the
central bank to keep interest rates
painfully high.
The economic
climate seems to be straining the political climate. The EU energy
commissioner felt
obliged to wrap the prime minister’s knuckles for
his comments about financing for the Nabucco oil
pipeline. Government
announcements about projects can at times seem designed to stimulate
optimism.
The danger is that economic anxiety leads to overstating the
benefits of existing projects and the
likelihood of potential ones.
Hungary’s biggest construction companies are already feeling the pinch.
Vegyepszer’s revenues are on a
precipitous descent and the company
has announced several hundred office layoffs. Strabag’s problems
stem from Russia, where it has placed many of its growth ambitions for the
next decade.
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