Boston, MA -- (SBWIRE) -- 12/09/2013 -- Our core for the Czech Republic's construction industry envisages yet another year of contraction in 2013, following two years of negativity in 2011 and 2012. Recovery in the sector will be dampened by the weaknesses in the residential and non-residential construction segment. A combination of a lack of demand and the presence of a large number of players in the industry is forcing industry participants to reduce prices, thereby giving them little incentive to invest in the segment. However, between 2014 and 2022, we expect the segment to post average annual growth of 3.1% year-on-year (y-o-y), with growth picking up pace after 2015.

Revised estimates from the Czech Statistical Office indicate that the construction sector in the country contracted by 5.2% y-o-y and 5.4% y-o-y during 2011 and 2012 respectively - in real value terms. The decline mainly came on the back of ongoing economic pressures in the country, which severely affected demand for construction. Accordingly, both the infrastructure and the residential and non-residential construction sub-segments posted declines - of 5.6% y-o-y and 6.2% y-o-y respectively - during 2012. For 2013, we forecast the construction sector to contract by a further 3.6% y-o-y, to be followed by a modest 2.0% y-o-y growth in 2014. Czech Statistics Office indicates that the approximate value of building permits granted by authorities fell by 6.4%, while the number of building permits granted was down as much as 16.5% y-o-y during Q213. The contribution of the infrastructure sub-segment to the total construction industry value will average around 47%, largely due to muted growth in the transport segment.

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The following factors have shaped our overall bearish view for the infrastructure segment in the country:

- Transport Could Funding Cuts: In September 2013, David Cermak, the head of the Directorate for Roads and Motorways (RSD) in the Czech Republic, indicated that the transport segment is likely to see significant budget cuts between 2014 and 2016. The RSD expects only CZK35bn to be allocated for transport during 2014, which will followed by just CZK22bn and CZK4bn in 2015 and 2016 respectively. The RSD, however, hopes that these figures will be revised to CZK33bn for 2014 and CZK25bn for 2015 under the new government. In light of this uncertainty, we maintain our view of a lacklustre 1.4% y-o-y average growth between 2014 and 2017.

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