Construction output plummets in Poland as EU funds at a standstill

Construction Intelligence Center 18 Nov 2016 EUROPE BUSINESS

Timetric’s Construction Intelligence Center (CIC) has sharply revised down its outlook for construction output in Poland as EU financial assistance is at a standstill. Nathan Hayes, economist at CIC, discusses the situation.

Poland is the largest recipient country of EU funding, with financial assistance to the country in 2014-2020 scheduled to reach EUR82.5 billion. However, EU funding to Poland has stalled due to ongoing disagreements over the country’s institutions and state of democracy.

Construction output is expected to decline in real terms in 2016 and 2017 reflecting this decline in investment funding, despite the strong fundamental picture in the country. Timetric has subsequently revised down its construction output growth forecast for Poland; it now expects a 10.4% decline in real terms in 2016.

Hayes comments: “Construction output volumes plummeted in Poland over the first eight months of 2016, mostly due to a standstill in investment from EU financial assistance. Additionally, industry sentiment was dampened by below-expectation economic growth over the year to date.

This bearish picture, combined with the likelihood of EU funds continuing to be delayed over the remainder of the year and into 2017, has informed the downward forecast revision.”

On the back of the previous round of EU funding (2007-2013) Poland recorded strong economic growth. The end of 2015 marked the deadline for drawing-down funds from this fiscal period, and there was an end to the surge in investment spending across much of Europe.

However, the 2014‑2020 funding period has generally not seen the release of funds. In Poland, this is due to prolonged negotiations before the 2015 parliamentary elections. Details remain vague on when the funds will be released, but this is likely to be in early 2017.

Although financial assistance earmarked for Poland will be released, the hold-up will weigh on output in Poland’s construction industry until at least the second half of 2017 at the earliest, when the pace of investment growth will regain momentum.

The relatively strong fundamental picture for the country remains; however, with EU funds drying up, Timetric expects to see a decline in output of 4.8% in real terms in 2017. Over the remainder of the forecast period, from 2018 to 2020, Timetric forecasts an improvement in construction activity as funding earmarked for Poland will likely flow again.

The total level of financial assistance given to Poland over the 2014-2020 period could be less than the €82.5 billion originally expected, and the domestic industries will not have the capacity to fully absorb the pent-up funds quickly, but there is likely to be a return to fairly strong growth rates in the latter part of the forecast period.

* More facts, figures and insight into the global construction industry at Timetric’s Construction Intelligence Center.

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