New market study, "Hungary Infrastructure Report Q2 2016", has been published

We expect slower growth in Hungary's construction sector from 2016 onwards as the government's stimulus for the infrastructure sector comes to an end. EU funding will continue to support the sector - particularly strategic road and rail projects, although we caution the EU probe into cartel allegations in road construction could damage relations with a key financier in the EC .

Strong growth in Hungary's construction sector is not due to last long term, as we expect a rising fiscal deficit to necessitate a drawback in public investment. Between 2016 and 2025, we expect construction sector real growth to average 2.9% per year.

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Latest Updates And Structural Trends

Civil engineering projects have been the primary drivers of the construction sector rebound, with road and railway projects in particular, driving the civil engineering growth. However, in November 2015, civil engineering works decreased by 8.0% year-on-year (y-o-y), construction of buildings increased by 10.2% y-o-y and the volume of construction output decreased by 0.2% y-o-y (Hungarian Statistical Office, January 2016).

A total of 962 development projects co-financed by the EU are currently delayed, business daily Vilaggazdasag published on November 4 2015. Citing cabinet office information, the paper stated that at the end of Q315 the state sector and local councils were HUF150bn (EUR480m) behind schedule in taking up EU financing. The state body responsible for Hungary's schools had more than 80 projects behind schedule and the National Infrastructure Development Company had 50 delayed projects. Budapest Transport Centre (BKK) projects were also significantly behind schedule. These delays caused a downgrade to our forecasts for the growth of the construction sector, resulting in real growth of 1.9% y-o-y in 2016.

The Hungarian government halted the construction of the M4 motorway's section connecting Abony and Fegyvernek in March 2015, following suspected cartel activity. In April 2015, the EC raised issues pertaining to alleged cartel activity. In November 2015, the government also halted the construction of the M4 motorway's section connecting Szolnok and Budapest, following the EC's concerns over its high cost (Budapest Business Journal, 2015).

We expect growth in the Hungarian railways sub-sector to outpace that in the roads and bridges sub-sector. Although a lot of financing is coming from China, more locally EIB is also forthcoming with financing.

HUF1,000bn (EUR3.2bn) of EU funding is available for railway development by 2020 to finance the modernisation of 800km of tracks that belong to the Trans-European Transport Network.

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