2013-09-22 08:57:05 - Recently published research from Business Monitor International, "Czech Republic Infrastructure Report Q4 2013", is now available at Fast Market Research
Our outlook for the Czech Republic's construction industry has changed for the worse, as we have downgraded our forecasts for construction industry value in 2013 to decline by nearly 4.8% year-onyear (y-o-y) in real value terms (compared with the 2.2% y-o-y contraction expected last quarter). Our core scenario envisages a recovery from 2014, with the market maintaining growth averaging close to 2.7% up to 2022 - part of which will come from favourable base effects and partly from infrastructure-related investments in the country.
Estimates from the Czech Statistics Office indicate that the approximate value of building permits granted by authorities and the number of new orders coming to the market continue to decline strongly in 2013. During the first five months
of 2013, the approximate value of building permits granted fell by more than 18% year-on-year (y-o-y), with May proving to be the worst month so far in the year. Meanwhile, the volume and value of new orders were down by more than 23% y-o-y each, as new orders for residential construction dried by as much as 41% y-o-y during the first quarter of 2013. Such is the gloom in the residential and non-residential construction segment that the segment is experiencing its sixth consecutive year of year-on-year decline, which has resulted in its share in total construction industry value shrinking from nearly 63% in 2007 to an expected 30% in 2013. During the remainder of the forecast period to 2022, we expect the segment to post average annual growth of 1.9% y-o-y, although there will bouts of some negative values once again over this period.
Full Report Details at
- www.fastmr.com/prod/673281_czech_republic_infrastructure_report_ ..
On the other hand, we expect the infrastructure sub-sector to be the main growth driver for the construction sector. Factors that help the construction sector cautiously recover from the ongoing slump are:
* Strong Transport Commitments: As a result of an increase in funding and the fact that the external environment is cautiously expected to pick up in 2013, we believe the transport sector will see some relief and we forecast moderate growth of 0.8% for 2013. The construction of the high speed railway - running between Prague's Bubny station to Kladno - is now due for completion by end-2013 or early 2014. The segment is also undertaking several modernisation projects, partly co-funded by the EU. In total, we expect these railway-related projects to push railways sub-sector annual average growth to 1.64% between 2014 and 2022.
* Energy Vision: The Czech Republic's long-term energy strategy focuses on meeting as much as 80% of its energy requirements from domestic sources, as 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. Although optimism in both of these growth areas has slightly diminished owing to concerns on the economic feasibility of the Tremlin nuclear power project and reports of a possible scandal in the solar plants, companies remain interested in investing in the country's energy sector. CEPS, the grid operator, said it will invest US$633.26mn in grid infrastructure by 2017, with the view to keeping pace with the additional generating capacity in the north west and new wind farms.
By regional standards, however, Czech Republic fares way better than its counterparts. The country ranks fourth in our regional Risk/Reward Ratings for the infrastructure segment in Eastern Europe, with an aboveaverage score of 67.2 points. Its biggest strength lies in the fact that it has a competitive and open infrastructure market. The existing environment is also open to international investment, with many of the world's largest construction companies actively involved in the sector.
On the downside, however, the fortunes of its construction industry remain highly dependent on EU funding and it is vulnerable to cutbacks in government spending. We also see some short-term downside risk to infrastructure investment and contract awards from the resignation of the Czech Prime Minister and his Cabinet in June 2013, following a corruption scandal. This not only heightened the short-term political risk in the country, but could also lead to delays in public works procurement.
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