November 22, 2019 / 1:57 PM / 16 days ago

Poland's construction output unexpectedly falls in October

WARSAW, Nov 22 (Reuters) - Poland’s construction sector unexpectedly shrank in October, data published by the statistics office showed on Friday, raising concerns over the ability of Central Europe’s biggest economy to sustain its resilience to a global economic slowdown.

Poland has been immune to the slowdown in Germany, its biggest export market, thanks to hefty social handouts by the ruling nationalist Law and Justice (PiS) party boosting consumption and European Union (EU) funds helping infrastructure projects.

In October, Poland’s industrial output rose by 3.5% year-on-year, above market forecasts of 2.6%, the statistics office said.

However, construction output unexpectedly fell by 4% year-on-year, while, according to analysts, the market had expected 6.2% growth.

“(...) running out of EU funds from the current financial perspective, limited infrastructure investments and the private sector’s refraining from starting new projects, leads to sharper slowing in this area of ​​the economy,” Bank Pocztowy economist Monika Kurtek said in a note.

Other data published on Friday showed business confidence in construction remained positive in November, but analysts say the sector’s contribution to GDP growth will continue to fall.

Growth fell to 3.9% in the third quarter from 4.6% in the previous period, as strong consumer demand failed to offset weaker construction and industry data, analysts said.

The GDP growth may slow further.

“We have to accept that the contribution of the construction industry to the value-added in the economy will be smaller than before, which leads us to (conclude) that the economy will remain in a slowdown mode,” said Grzegorz Ogonek of Santander.

Construction industry insiders also point to the fact that some big contracts were awarded by state agencies later than expected this year, which meant actual works start with a delay.

Poland has also pulled out this year from some road-building contracts, saying companies were late with their works. Companies have said they were demanding higher pay due to rising material and job costs, while the state resisted such demands. (Reporting by Anna Koper; Editing by Andrew Cawthorne)

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