Balkan optimism continues

Optimism in the Balkan construction market is being confirmed in the latest forecasts from the EECFA, but not all the Eastern European countries it monitors are looking as positive.

EECFA (the Eastern Europe Construction Forecasting Association) published its latest forecast reports running up to 2018 on the eight Eastern European countries it covers – Bulgaria, Croatia, Romania, Russia, Serbia, Slovenia, Turkey and Ukraine.

On the €30 billion Balkan market, EECFA said that the building construction market was expected to show close to 10% growth, and that the residential sector could perform above the average.

It said that after the transitory 2016, when a slowdown of EU funds absorption was causing a drop in the civil engineering market in several countries, growth was projected to return to this sub-market from 2017 on.

For the rest of the EECFA region, measured at €180 billion, it said that a soft landing in Turkey and the returning growth in Ukraine could not counterbalance the drop in Russia.

Overall, the civil engineering market was forecast to increase, but building construction was estimated to fall about 2%. It added that expansion of the Russia residential market was expected only from 2018 onwards.

The outlook for construction output in Bulgaria, it said, was that it was likely to record an all-time slump in 2016, with a decline of 18.9%. This was as a result of the sharp deterioration of civil construction output deriving from the slow preparation process of the EU operational programmes within the new programming period.

It said that the residential market, however, was supported by decreasing interest rates on mortgage loans, among other things, which, together with the civil engineering growth next year would help the whole construction market to register a 14.7% growth in 2017.

Better performance

Croatia’s construction sector is set to register a higher growth in 2016 (6.1%) than last year driven by the better performance of non-residential and civil engineering segments, said the EECFA.

It added that there was uncertainty, though, as a result of the new government. It was felt that there might be damage to the construction sector through delays in programme implementation, and applications for EU and international financial institution funds, caused by the slowness of the government to act.

In Romania, after the 9% growth posted in 2015, total construction output for 2016 was predicted to be much lower, 3.4%, with civil engineering dropping this year because of the EU funding phasing issues and the election impacts delaying ongoing projects.

Nevertheless, the EECFA said that the residential market would offset the decline, fuelled by low mortgage interest rates, rises in household income and public policies stimulating residential construction.

The construction market in Serbia was likely to remain on a steady growth path, it said, with 12.1% in 2016 and 12.3% in 2017. It also felt that the government-implemented reformed permit procedures – leading to a shorter and cheaper acquisition process – in combination with the economic recovery, secured a positive outlook over the forecast period.

Slovenia is expected by the EECFA to witness a massive 8.1% shrinkage in construction output in 2016, which it attributed to an absence of EU funding of new projects available this year.

However, with the EU financial perspective recovered, construction should register a surge of 9.1% in 2017 and 8.9% in 2018, it said.

Larger countries

Turning to the largest countries it covers, Russia’s economy last year operated under conditions of low oil prices, external sanctions and limitations, which were aggravated by a number of accumulated internal structural problems.

It said that the economy was immersed in a deep crisis, which would unavoidably have a negative influence on many economic sectors, including construction. Total construction output was, therefore, forecast to fall 5.3% in 2016. For 2017, a smaller decline of 1.7% was expected, and growth of 1.2% for 2018.

The construction sector in Turkey should see an increase of 2.4% this year, said EEFCA. It said the number of Syrian refugees having escaped from the war had gone up to 2.8 million in May 2016, and that about 500 thousand Syrian households lived in regular housing in Turkish cities, though many of them in overcrowded conditions.

It reported that the private sector had been dominating housing production, and had increased its share from 81.3% in 2002 to 92.3% share in 2014. In the last two years, the shares of the public sector have been 5% and 6%.

The construction industry in Ukraine was said still to be in a sluggish recession, with the negative factors characterising the construction market including the deterioration of financial performance, reduced availability of credit, a drop in investment activity and high inflation. EEFCA said that after the very negative year of 2015 that saw a huge drop in outputs – a fall of 11.0% – construction was likely see growth of 5.1% this year.

EECFA is a construction forecasting research co-operation of eight Eastern European national research institutions, serving the market intelligence needs of building material producers and construction component providers. Reports are updated half-yearly.