This report covers the market developments in Q2/2014 and the data available as of September 2014.

The construction works index dropped by 10.6% y/y in Q2/2014, after having declined by 10.2% y/y in the previous quarter. The decline in Q2 was mainly on the back of the poor performance of the civil engineering segment, which plunged by 25.4% y/y, affected by the government’s cutting capital expenditures and sluggish advance of EU-financed projects.

Non-residential constructions shrank by 2.6% y/y in Q2, after an encouraging double-digit y/y growth in Q1. Non-residential constructions include retail parks, office buildings but also public buildings, so the performance in Q2 might reflect a combination of the stagnation in the public part of the segment and a reported acceleration in the private part of the segment.

Residential constructions continued upwards and surged by 76.5% y/y over the quarter. The notable expansion of the residential constructions is mostly explained by low base comparison and however did not manage to offset the negative performance of the two other market segments, non-residential and civil engineering.
The construction sector was negatively affected this year by a combination of factors, among which scarce financing, adverse taxation regime and slow absorption of EU funds. On the upside, each of these factors are expected to be partly settled in the coming quarters, as government promised to boost investments by end-2014 and to cut the tax on special assets. On the other hand, the government plans to cut some RON 1bn infrastructure investment spending under the draft of the second budget revision this year, released at end-Sep.

Accordingly, the sector is unlikely to see a significant recovery by the end of the year, but rather start recovering slowly beginning with 2015.

Key points:

• Construction works index further declines in Q2/2014, bringing H1 drop at 10.4% y/y
• Number of residential permits rises for fourth consecutive quarter in Q2
• CNADNR launches tender for EUR 125mn road contract in Satu Mare
• Value of real estate investments may reach EUR 500mn this year, several large transactions expected to be completed in Q4
• NEPI raises EUR 100mn in capital for projects in Romania