New Market Report: Hungary Infrastructure Report Q2 2013

From: Fast Market Research, Inc.
Published: Tue Apr 30 2013

Despite the dismal performance in 2012, we see little scope for recovery in the Hungarian construction sector during 2013, as weak economic outlook, uncertainty surrounding the financing of planned projects and the over-burdened private household sector will deter investments into the sector. Our core view for the sector envisages the market returning to positive growth territory from 2014. However, we highlight that weaknesses in the residential and non-residential construction sub-sector - which accounted for a hefty 54.8% of the total construction industry value during 2012 - will dampen prospects for a strong rebound in the overall construction sector during the forecast period.

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According to official statistics, the number of completed homes fell 17% during 2012, despite a sharp 40% year-on-year (y-o-y) contraction in 2011 and continuous declines since 2007. Similarly, number of planned commercial buildings decreased by 13% y-o-y during 2012. We expect investment in the subsector to remain depressed until 2014 and grow only an average 0.5% y-o-y during the forecast period. On the other hand, our medium- to long-term outlook for the infrastructure sub-sector is more positive, thanks to sustained growth in the transportation and the energy and utilities segments.

Sectors that show particularly strong potential are:

* The railroad boost: 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.
* Pipeline projects: A number of international natural gas pipelines passing through the country have the potential to bring substantial investment in the Hungarian energy and utilities segment. In addition to various pipeline projects with its neighbours, Hungary has joined four other countries in the region to sign an intergovernmental agreement that apportions gas flowing through the planned Nabucco pipeline from Central Asia. Although the project has been impeded by significant delays and cost concerns, Bulgarian Prime Minister Boyko Borisov revealed that he expects the construction of the Nabucco pipeline to begin in January 2013 and be operational by 2017.

However, we also highlight downside risks to this scenario, as a number of key projects could face potential delays owing to shortage of funds. Following the grounding of flag-carrier Malev in February 2012 , work on the Cargo City project has been postponed and is now due to start from 2014. As recently as February 2013, Hungary's 2GW nuclear power plant in Paks revealed plans to request for the extension of its 500MW second-oldest generation unit until 2034. However, the question still remains over who will pay for investments in the nuclear sector.

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- Canada Infrastructure Report Q2 2013
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