Gross Fixed Capital Formation 1st Quarter 2024

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Gross Fixed Capital Formation 1st Quarter 2024

The construction sector underperformed against expectations in the 1st quarter of 2024

The sector experienced an 11.8 percent year-on-year decrease in real terms (not seasonally adjusted), with residential investment plummeting by double-digit rates for the third consecutive quarter, showing a 16.1 percent year-on-year decline. Non-residential investment was equally disappointing, with a 13.8 percent year-on-year decrease. Although we anticipated building investment would come under pressure due to poor economic fundamentals deterring investment, the 7.8 percent year-on-year decline in construction works was unexpected and marks the third consecutive quarter of decline for the civil sector.

Tender values have shown a somewhat robust increase, but this has yet to translate into actual investment. It is important to note that the gross fixed capital formation (GFCF) estimates include imported machinery and equipment, which can distort the underlying trends affecting the contracting industry. Therefore, we cannot entirely dismiss the impact of a potential slowdown in private sector renewable energy production, which could influence the GFCF numbers in construction works.

Overall Gross Fixed Capital Formation fell by 2.8 percent y-y in Q1 from a moderate increase of 0.8 percent in 2023Q4, as total fixed investment by government fell by 8.2 percent and by 2.0 percent by the private sector. Total fixed investment by Public Corporations slowed to an annual increase of 1.7 percent, from 9.2 percent in 2023Q4 (Constant prices, not seasonally adjusted). Investment as a percentage of GDP deteriorated further to 14.3 percent, on par with 2022 levels. The contribution by the construction sector to total investment, slowed to 34 percent and to a historical low of 4.9 percent as a percentage of GDP.

It is disheartening that despite the renewed focus on infrastructure expenditure at all government levels, with budgetary allocations reprioritized to emphasize economic infrastructure, the construction sector was the worst-performing sector in the first quarter. The sector's value-added contribution decreased by 3.1 percent. Consequently, the construction sector remains in recession, having declined for the last four consecutive quarters.




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