State investment seen critical for Czech construction recovery

Czech construction output is forecast to fall -2% on-year in 2020 as a result of the Covid-19 pandemic impact, following 2.6% growth in 2019, industry participants say in the latest edition of CEEC Research’s Czech construction report. Output is then seen inching down a further -0.4% in 2021.

The construction industry is faring better during the crisis than other sectors. In March, construction output fell by only -2.3% year-on-year in real terms, which was less than expected. Although the sector confidence index fell by 3.1 points on-month in the Czech Statistical Office (CZSO) business survey for May, meanwhile, it was still at a high value of 104.2. Moreover, employment expectations over the next three months rose slightly.

Building construction is seen falling -2.4% this year, but civil engineering construction should fall by a less steep -1.4%, Kallanish notes.

“There is a risk of a slight decline in the market, mainly due to reduced demand from private builders (investors),” Czech industry and trade minister Karel Havlicek says of the construction sector. “In order to mitigate the consequences of the Covid-19 pandemic, contracts awarded by state investor organisations, in particular the Directorate of Roads and Motorways and the Railway Administration, will be very important.”

The Czech State Fund for Transport Infrastructure budget has been increased by CZK 20 billion ($836.5 million) to CZK 106.5 billion ($4.45 billion), and negotiations are ongoing to raise this further to CZK 114 billion, Havlicek adds.

Tomas Koranda, chairman of construction firm Hochtief CZ, however, says “…there will be a further slowdown in the economy and a decline in state budget revenues with a dramatic increase in extraordinary expenditures. This will lead to a consequent reduction in public investment expenditure, and it is therefore possible to expect the suspension of some public contracts or the postponement or cancellation of some contracts.”

Czech Republic’s main construction steel supplier is Liberty Ostrava, while compatriot steelmakers Trinecke Zelezarny and Vitkovice Steel supply mainly other end-use sectors.