Boston, MA -- (SBWIRE) -- 10/29/2013 -- Continued weaknesses in the residential and non-residential construction sub-sector and lack of funding in the infrastructure sub-sector will be the two most potent dampeners for growth in the overall construction sector. Growing at an average annual rate of only 1.6% year-on-year (y-o-y) between 2013 and 2022, we see little room for a complete recovery in the construction sector's real value anytime during the 10-year forecast period. The infrastructure segment will, however, outperform the residential and nonresidential construction sub-segment, thanks to continued investments in transport and utilities.

Although Q113 readings for real GDP surprised to the upside, declining 'only' 0.9% y-o-y, from -2.7% y-oy in Q412, there is little optimism in the construction sector. The Central Statistics Office (KSH) estimates that only 2,680 new houses were completed during H113 - almost 40% lower compared with the same period in 2012. Meanwhile, the number of new construction permits issued in the first half of 2013 fell by 43% to just 567. Given that the residential and non-residential construction sub-segment itself accounts for close to 55% of the total construction industry value (as of 2012), it will be hard for the construction sector to recover as long as demand in the residential and non-residential construction sub-segment remains weak. We are forecasting a 2.7% y-o-y contraction in the sub-segment to result in an overall 0.5% y-o-y real contraction in the construction industry value during 2013.

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Meanwhile, we forecast government expenditure to remain static during the course of 2013, as the Hungarian government attempts to keep its budget deficit under the 3.0% of GDP level that has enabled the country to leave the EDP. The infrastructure segment will accordingly grow by only a cautious 2.1% y-o-y during 2013.

Key areas of growth in the sector:

- Commitment To Transport Spending: The biggest growth opportunity for the country's transport infrastructure is the support given by the EU to drive the modernisation of Hungary's road and rail links and improve freight transport throughout the country. We expect growth in the railways sub-sector to outpace growth in the overall transport segment as the government remains committed to bring investments into the segment. In May 2013, GYOR-Sopron-Ebenfurth Railway (GySEV) invited bids for a contract to electrify the Szombathely-Hegyeshalom line in Western Hungary. The project involves electrification of the 87km section from Porpac to Mosonszolnok, reconstruction of platforms at 15 stations and the deployment of electric turnout heater units. It is scheduled to be concluded by end-2015.

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