RO construction: From first to last place

According to ZF daily quoting Eurostat, the Romanian construction sector plunged 23.7% y/y in May, the highest drop in the EU and more than double the average EU decline of 9.6% y/y. In the first three months of 2009 Romania posted the highest construction growth rates in the EU. According to representatives of the Romanian Association of Entrepreneurs in the Construction Sector, quoted by ZF daily, the decline was mainly due to low expenditures on infrastructure, which experienced an estimated 30% y/y decline during 1H09.

Our view:
Major construction companies in Romania have announced the signing of only a small number of contracts in 1H09 and there have been suggestions of lay-offs in order to reduce activity. We could see a rebound in Romania’s construction sector in 2H09: infrastructure expenditures experienced a slight improvement recently after becoming a priority for the Romanian government. Also, Romania’s First Home program should help to unfreeze the residential market. We view the news as neutral.