Czech construction production in decline despite better month-on-month results

The results of the April construction production, reported today by the Czech Statistical Office (ČSÚ), are more positive than the drop in March, but in year-on-year comparison they still indicate a decline in the Czech construction industry. The downturn is noticeable mainly in civil engineering, i.e. in the construction of buildings, which is financed mainly by private investors. Engineering construction, i.e. the construction of energy and transport infrastructure elements, is doing better, among other things, because the segment is not as affected by the still relatively high interest rates.

"While March's construction output disappointed significantly, April's already looked much better. From a year-on-year perspective, momentum remains subdued, and this is especially true for the land segment. The statistics on building permits issued in April did not bring much optimism, at least at first glance. Relatively encouraging news came from statistics on residential housing, although it concerns the more distant future," said Jan Vejmělek, economist and analyst at Komerční banka.

According to the Czech Statistical Office, construction output in the Czech Republic slowed down to 0.3 percent year-on-year in April, while in March construction output was 8.3 percent lower year-on-year. In April, the year-on-year decline was dampened by civil engineering construction, which includes the building of roads or telecommunications and energy networks, up 3.2 percent. Output in civil engineering, which is the construction of buildings, was down 2 percent year-over-year. The indicative value of buildings for which building permits were issued in April reached CZK 45 billion, down 16.5 per cent year-on-year.

According to Petr Dufek, economist at Banka Creditas, the downturn in civil engineering is caused by a significant reduction in civil engineering and housing construction. "Compared to 2019, it is weaker by almost eight per cent, but at least in the residential construction sector, we hope that better times are beginning to look good," Dufek said. Lukáš Kovanda of Trinity Bank added that the civil engineering sector, in which the private sector is mainly involved, is reacting to the extraordinary inflation of recent years - and the associated relatively high interest rates, from which stems investment uncertainty and poorer availability of financing for both the construction itself and the actual acquisition of real estate.

Swiss Life Hypoindex data show that the average mortgage rate fell slightly to 5.52 per cent in early May from 5.57 per cent in April. However, while the Czech National Bank cut the two-week repo rate by 1.5 percentage points this year, banks cut mortgage rates by just half a percentage point, according to the Hypoindex.

Source: CTK