Hungary’s infrastructure outlook for 2009 has improved marginally since BMI’s previous report, but thesector will still be much worse than it was last year. We now expect the construction industry’s value forthe year to be HUF960bn (US$4.69bn). That is better than the HUF799.4bn (US$4.08bn) we foresawonly a quarter ago, but it’s not much to cheer about. The revised figure still represents a real decline of11.33% for the sector. Our figures do, however, show that Hungary’s 2009 decline is coming off of amuch better 2008 than previously expected. And rather than a contraction of 3.13% in 2010, we nowexpect the sector to show minuscule growth.
Construction would therefore account for almost 4% of Hungarian GDP. The growing importance of thesector is explained by the sharp deterioration in the rest of the economy. BMI expects GDP in 2009 tocontract by 6.4%, dragged down by falling consumption, declining foreign investment and weak exports.Even in 2010, BMI expects only the slightest economic growth of 0.1%. Unemployment already crept upto an average monthly rate of 8% in the final three months of 2008 and many analysts expect that figureto increase as employers respond to worsening conditions.
Hungary has become increasingly dependent on EU funding to proceed with its projects. The NationalDevelopment Agency is quick to announce new projects, but its announcements are noticeably short ondetails about contractors and schedules. Nevertheless, some projects are showing signs of real progress.The M3 motorway, for example, looks like it will have the funding to move to the construction phase thisyear.
Hungary has already turned to the IMF for loans to help it through the crisis and must now work to meetIMF conditions on deficit spending. Standard & Poor’s warns that the country faces a long, painfulperiod of adjustment. Hungarians’ exposure to foreign loans, especially denominated in Swiss francs,makes the country extremely vulnerable. The direction of inflation should argue for monetary easing, butthe rising government debt and international uncertainty may force the central bank to keep interest ratespainfully high.
The economic climate seems to be straining the political climate. The EU energy commissioner feltobliged to rap the prime minister’s knuckles for his comments about financing for the Nabucco oilpipeline. Government announcements about projects can at times seem designed to stimulate optimism.
The danger is that economic anxiety leads to overstating the benefits of existing projects and thelikelihood of potential ones.
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