Hungary Infrastructure Report Q1 2008

There has been a marked shift in the economic performance of Hungary since its accession to the European Union (EU) in May 2004. The Hungarian construction industry is forecast in the vicinity of US$7.74bn by 2012. A number of rail and road projects are underway and the bulk of construction spending is expected to find its way to the nation's transport segment. This report forecasts the Hungarian construction industry to grow at an annual average of 8.88% over 2008-2012.

EU funding is likely to increase public sector orders for construction and, in turn, boost the Hungarian construction industry, which is already the fourth-largest industry in the nation. The public procurement market is expected to expand rapidly, following the introduction of a new public procurement act, allowing EU-registered firms to bid for Hungarian tenders without links to a local company or local reference projects. The EU funding programme and Hungary's second National Development Plan, envisage huge spending on railway development and on water infrastructure during 2007-2013. The government's privatisation plans could also provide an impetus to the infrastructure sector. One of the major projects at the feasibility stage in 2007 is the US$6.38bn South European Gas Pipeline (SEGP).

However, the Hungarian construction industry may face a slowdown on the housing front in 2007, as according to the Central Statistical Office (KSH), volume of construction activity has decreased by 15.8% in June 2007 compared to the same period a year ago. Meanwhile, intense competition and the need to cut costs have led to the use of a large number of illegal construction workers, especially from Ukraine and Romania.

On a positive note, the government is planning to overhaul Hungary's tax system in 2009 and hike levies on property and personal wealth. The country's central bank, Magyar Nemzeti Bank (MNB), expects investment activity to pick up in 2008. BMI forecasts the Hungarian construction industry to reach a value of US$4.82bn in 2007 and further to US$7.7bn by the year 2012.