EU fund uncertainty cools Polish construction optimism: analyst

Uncertainty over the allocation of EU recovery funds and instability in China’s real estate market have cooled the optimism seen earlier this year in Poland’s construction industry, Bank BPS analyst Artur Wizner confirms to Kallanish.

Following the initial Covid-19-induced collapse in spring 2020, the WIG Budownictwo construction company subindex was the fastest growing index of the Warsaw Stock Exchange, peaking in September 2021.

This was due to construction investments continuing despite the pandemic, as well as a rebound in the construction sector from the third quarter of 2020. Thirdly and most importantly, the prospect of Poland receiving over €700 billion ($791.5 billion) of overall EU funding for infrastructure investments, such as in road and rail, was a major driver of the strong growth.

However, now, “it’s unknown when they [EU funds] are supposed to appear and what they’ll actually be allocated to,” Wizner says. “This situation has cooled the earlier optimism. Moreover, in September, the sentiment of investors towards the sector was damaged by the information of Chinese construction company Evergrande’s potential bankruptcy.”

The Evergrande situation should not pose a risk to Polish construction companies that do not have contracts in the Asian market. However, high inflation will have a direct impact on company performance, as it creates upward pressure on wage values, “and a rise in labour costs plays a very significant role in this business”, Wizner comments.

Rising raw material prices are meanwhile the main risk factor for the profitability of contracts in the sector, he concludes.

Adam Smith Germany