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 continue to expect the construction industry’s
value for the year to be HUF960bn (US$4.69bn). The figure represents a real
decline of 11.33% for the
sector. The latest data from the country’s
statistical office are showing a sharp deterioration in
construction
spending, but there are some surprising pockets of growth. We still expect
2010 to bring
minuscule growth, with a healthier rebound in 2011.
Construction accounts for almost 4% of Hungarian GDP. The importance of the
sector is explained by the
sharp deterioration in the rest of the economy;
as the broader economy improves in 2010, construction
should begin to
represent a smaller proportion of the total. 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 we expect the rate
at the end of 2009 to
be 14%.
Hungary has become increasingly
dependent on EU funding to proceed with its projects. The National
Development Agency has been quick to announce new projects, but its
announcements are noticeably
short on details about contractors and
schedules. Nevertheless, there is progress. MTI-Econews reported a
noticeable number of cornerstones being laid in the latest quarter on a range
of logistics centres
throughout the country.
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 has
warned 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 central bank went so
far as to tell journalists it would ask
the government to limit
banks’ retail lending, especially in foreign currencies, believing that
the
competition for customers was incurring systemic risks. But the
vulnerability is less today than it was
several months ago. The central
bank felt confident enough to cut interest rates a full percentage point
in
July, an indication that the worst of the crisis is over. The central
bank specifically cited the stability of
the currency and investors’
appetite for Hungarian debt. A government official also told Dow Jones
that
the government may not draw on the remainder of the EUR20bn IMF
credit line this year.
The economic climate is forcing the government to
take steps that could prove to be politically fraught.
The prime minister
called for a freeze on hiring in the public sector to save HUF1bn (US$5.3mn).
But the
freeze is meant to explicitly exclude involvement in European
Union labour projects. Prime Minister
Gordon Bajnai also told local
governments that they would have to cut spending in 2010.
Hungary’s
biggest construction companies have been feeling the pinch. Vegyepszer’s
revenues have been
on a precipitous descent, and the company announced
several hundred office layoffs in the previous
quarter. Strabag’s
problems stem from Russia, where it has placed many of its growth ambitions
for the
next decade.
| 
View Cart
