Analysts: Spring floods may also be responsible for the decline in construction in April

Prague - The decrease in construction output in April compared to the previous year by 2.9 percent was partly caused by a lower number of working days compared to last year. Adverse weather conditions and spring floods also negatively affected the results. In the coming months, construction is expected to grow again, potentially showing an increase of four to six percent for the entire year. This is indicated by the responses of surveyed analysts who reacted to today’s statistical data.
"It is quite difficult to assess the results of construction since they have been long-term skewed by the realities from 2004, when invoicing was shifted to take advantage of lower VAT," noted ČSOB analyst Petr Dufek. He does not view the April results positively. "The decline might be linked to the continuing worse weather and a lower number of working days," he added.
Floods also adversely affected production results, and the low statistical base from last April did not have a significant impact, stated economist Eva Zamrazilová from Komerční banka. According to Petr Bártek from Cyrrus, the decline is likely due to the postponement of repairs and smaller construction projects because of the cold weather.
Construction has been slowing its growth rate over the long term, remarked Markéta Šichtařová from Next Finance. "There are two reasons for this. First, a high statistical base from previous periods, and secondly, a lower number of large public contracts," said the economist. According to her, large public contracts will not be coming in the second half of this year. "The post-election period does not favor new state contracts," she believes. According to her, construction firms will refocus on building apartments and family homes in the second half of the year.
In April, construction authorities approved the construction of over 3,500 apartments, which is approximately 600 apartments more than in April of last year. According to Šichtařová, the demand for apartments will exceed supply at least until the end of 2007. Thus, the purchase of an apartment will remain an attractive investment, she notes. "In the best locations - the east and west of Prague, Hradec Králové, and similar areas - prices for some apartments could rise at a double-digit pace. Price growth will be higher for more luxurious apartments," she added.
Construction output entered this year with a decline of 1.2 percent year-on-year. In February, it fell by 8.2 percent. It returned to a growth trend a month later when it reported an increase of 8.8 percent compared to the same period last year. However, according to the latest results, it again fell in April.
According to analysts, construction is expected to grow in the coming months, but the development of building permits indicates lower growth performance. "In the coming months, although we expect positive growth rates, we are lowering our annual forecast to six percent," noted Zamrazilová. In early April, she estimated growth at up to eight percent. According to Dufek, construction could account for around four percent for the entire year.
According to Dufek, the growth of construction output will be supported by infrastructure projects financed from domestic and European funds. Housing construction will also not fall behind, experiencing a boom ahead of the expected increase in VAT. Generally, construction benefits from low interest rates and high demand.