Czech Republic Infrastructure Report Q3 2013 - New Market Research Report

Our core view for the Czech Republic's construction industry envisages yet another year of negative real growth in 2013, followed by a mild recovery in 2014. From 2014 onwards, we forecast a positive growth averaging close to 2.7% between 2014 and 2022, which will partly come on the back of favourable base effects and partly from infrastructure-related investments in the country.

Overall, there is generally little optimism in the industry. Estimates from the Czech Statistics Office indicate that the number of planning and building permits granted by authorities continue to decline while the number of new and finished dwellings coming to the market remain low in 2013. In February 2013, 5.8% fewer building permits were approved compared with the same month last year, while the number of dwellings on which work started were down by a hefty 19.9% year-on-year (y-o-y). In light of these trends, we do not foresee that values in residential and non-residential construction sub-sector will be positive through 2013, with a further contraction of 7.5%.

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However, factors that help make us relatively more optimistic, although still cautious, about growth in the infrastructure sub-segment are:

* Strong Transport Commitments: Coupled with this increase in funding and the fact that the external environment is cautiously expected to pick up in 2013, we believe the transport sector will see some relief and we forecast moderate growth of 0.8% for 2013. The construction of the high speed railway - running between Prague's Bubny station and to Kladno - is now due for completion by end-2013 or early 2014. The segment is also undertaking several modernisation projects, partly co-funded by the EU. In total, we expect these railway-related projects to push railways sub-sector annual average growth to 1.64% between 2014 and 2022.
* Energy Vision: The Czech Republic's long term energy strategy focuses on meeting as much as 80% of its energy requirements from domestic sources, as Czech Prime Minister Petr Necas revealed in November 2012. For this, the country is pinning hopes on nuclear as well as various forms of renewable energy. This has so far encouraged companies to invest in solar and wind power generating projects. Meanwhile, CEPS, the grid operator, said it will invest US$633.26mn in grid infrastructure by 2017, with the view to keep pace with the additional generating capacity in the north-west and new wind farms.

By regional standards, however, Czech Republic fares way better than its counterparts. The country ranks fourth in our regional Risk/Reward Ratings for the infrastructure segment in Eastern Europe, with an above-average score of 61.3 points. Its biggest strength lies in the fact that it has a competitive and open infrastructure market. The existing environment is also open to international investment, with many of the world's largest construction companies actively involved in the sector.

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