2013-12-05 18:05:46 - New Construction research report from Business Monitor International is now available from Fast Market Research
Our core for the Czech Republic's construction industry envisages yet another year of contraction in 2013, following two years of negativity in 2011 and 2012. Recovery in the sector will be dampened by the weaknesses in the residential and non-residential construction segment. A combination of a lack of demand and the presence of a large number of players in the industry is forcing industry participants to reduce prices, thereby giving them little incentive to invest in the segment. However, between 2014 and 2022, we expect the segment to post average annual growth of 3.1% year-on-year (y-o-y), with growth picking up pace after 2015.
Revised estimates from the Czech Statistical Office indicate that the construction sector in the country contracted by 5.2%
y-o-y and 5.4% y-o-y during 2011 and 2012 respectively - in real value terms. The decline mainly came on the back of ongoing economic pressures in the country, which severely affected demand for construction. Accordingly, both the infrastructure and the residential and non-residential construction sub-segments posted declines - of 5.6% y-o-y and 6.2% y-o-y respectively - during 2012. For 2013, we forecast the construction sector to contract by a further 3.6% y-o-y, to be followed by a modest 2.0% y-o-y growth in 2014. Czech Statistics Office indicates that the approximate value of building permits granted by authorities fell by 6.4%, while the number of building permits granted was down as much as 16.5% y-o-y during Q213. The contribution of the infrastructure sub-segment to the total construction industry value will average around 47%, largely due to muted growth in the transport segment.
Full Report Details at
- www.fastmr.com/prod/723446_czech_republic_infrastructure_report_ ..
The following factors have shaped our overall bearish view for the infrastructure segment in the country:
* Transport Could Funding Cuts: In September 2013, David Cermak, the head of the Directorate for Roads and Motorways (RSD) in the Czech Republic, indicated that the transport segment is likely to see significant budget cuts between 2014 and 2016. The RSD expects only CZK35bn to be allocated for transport during 2014, which will followed by just CZK22bn and CZK4bn in 2015 and 2016 respectively. The RSD, however, hopes that these figures will be revised to CZK33bn for 2014 and CZK25bn for 2015 under the new government. In light of this uncertainty, we maintain our view of a lacklustre 1.4% y-o-y average growth between 2014 and 2017.
* End To Renewable Energy Subsidy: In the same month, it was announced that the Czech Senate has passed into law a policy that will cut a number of state subsidies for developers of renewable energy projects in the country. Solar power projects will receive subsidies until end-2013, with hydro, biomass and wind developments only eligible if they are completed before end-2014. The Czech Republic's long-term energy strategy focuses on meeting as much as 80% of its energy requirements from domestic sources, as then 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.
* Further Delays to Nuclear Power: There is increased uncertainty in the nuclear power sector. In July 2013, Czech power company CEZ revealed its plans to delay to the tender for the Temelin nuclear plant, following the collapse of the government in the previous month and the consequent policy uncertainty. CEZ was due to select suppliers for the two planned units at Temelin nuclear plant by the end of 2013, in a project expected to cost approximately US$10bn. All of this comes at a time when CEZ faces headwinds from the west and is looking to shed part of its power generating capacity as a way of avoiding EU fines for violating competitive practices.
Despite the weak outlook, Czech Republic holds a coveted fourth position in our Risk/Reward Ratings system in the Central and Emerging Europe region, with an aggregate score of 61.3. It scores particularly well in terms of Industry Risk, owing to its competitive and open infrastructure market as well as the presence of the world's largest construction companies. However, the resignation of the Czech prime minister and his Cabinet in June 2013 following a corruption scandal has seen short-term political risk heightened and will likely see delays in public works procurement.
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