Page 55 - CE Outlook Regions 2023

Runaway material and energy prices, skyrocketing financing costs, and
falling private and public demand all point to a slowdown, according to
analysts. The government postponed some HUF2 trillion of state
investments to plug the budget holes. On a positive note, the extension
of the 5% VAT on residential home construction and robust growth in
the industrial logistics market could lend support to growth.

The sector’s output in the first nine months increased by 4.8% from the
base period and with the Q4 slowdown of the economy it is expected to
slow further in the coming quarters compared to a 16.7% growth in
2021, lifted by a low base. Construction association Evosz has warned
of double-digit declines in 2023 for the first time since 2020, because of
falling new orders.

The order stock was 8.2% lower at the end of September and buildings
segment orders dropped 15% and civil engineering orders fell 3.6%.
New orders declined 20.9% as new orders in the buildings segment
slipped 5.8% and new civil engineering orders were down 34.4%.

Construction producer prices continued to rise above the rate of
inflation, up 26.2% y/y in September. Home prices continued to grow by
double-digits in 2022, extending seven to eight years of growth, but
prices are set to stagnate amid tighter lending conditions and faltering
demand due to expected real wage contraction.

The MNB warned of the risk of overvaluation in the housing market,
adding that the developments in credit trends point to a potential
build-up of risks in the medium term due to rising yields and the
weakening of the purchasing power of households.

3.3.6 Major Sectors

The tourism sector, generating 10% of GDP, took a hard hit during the
pandemic, which ended years of record growth. Guest numbers in
Budapest hotels plunged from 4.6mn in 2019 to 1mn in 2020, with
foreign guests accounting for 75-80% of the total. Hungarian hotels with
at least three stars recorded an 11.3% increase in guest nights to
15.2mn or just 42.5% of the pre-crisis level in 2021.

From a low base, the sector has staged a recovery. The number of
guest nights climbed 50.4% y/y in the January-October period to
22.81mn. The number of guest nights spent by domestic travellers rose
20.0% to 13.22mn and foreign guest night numbers jumped 131.6% to
9.58mn.

The position of Budapest improved as international tourism recovered
from the pandemic. Hungary’s tourism sector could also exploit its
comparative advantage from the weak currency.

The sector’s outlook is clouded by the energy crisis and the decline of
purchasing power as households are cutting back on spending on
services amid surging inflation. Spa hotels outside of Budapest are
reeling from skyrocketing energy prices, and many operators are

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