Abstract
Hungary’s infrastructure outlook for 2009 has improved marginally since
BMI’s previous report, but the
sector will still be much worse than
it was last year. We now expect the construction industry’s value
for
the year to be HUF960bn (US$4.69bn). That is better than the
HUF799.4bn (US$4.08bn) we foresaw
only a quarter ago, but it’s not
much to cheer about. The revised figure still represents a real decline of
11.33% for the sector. Our figures do, however, show that Hungary’s 2009
decline is coming off of a
much better 2008 than previously expected. And
rather than a contraction of 3.13% in 2010, we now
expect the sector to
show minuscule growth.
Construction would therefore account for almost 4%
of Hungarian GDP. The growing importance of the
sector is explained by the
sharp deterioration in the rest of the economy. BMI expects GDP in 2009 to
contract by 6.4%, dragged down by falling consumption, declining foreign
investment and weak exports.
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.
Hungary has become increasingly dependent on EU funding to proceed with its
projects. The National
Development Agency is quick to announce new
projects, but its announcements are noticeably short on
details about
contractors and schedules. Nevertheless, some projects are showing signs of
real progress.
The M3 motorway, for example, looks like it will have the
funding to move to the construction phase this
year.
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 rap 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.
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