In terms of composition, production in the area of building construction slowed in October (1.1% year-on-year after 3.9% in September), while civil engineering construction remained strong (+17, 6% year-on-year after +17.9% in September) and the growth of specialized works slowed. slightly (7.1% year-on-year in October, compared to 10.0% the previous month).
We associate the strong and continuous growth of civil engineering construction with public investments co-financed by European funds. This December marks the end of access to funds from the 2014-2020 financial perspective, and the end of the budget perspective usually brings with it an accumulation of spending.
Growth in building construction output was supported by easier access to mortgages, linked to the high popularity of the government’s mortgage subsidy program (launched in July), the fall in interest rates following the rate cuts by the National Bank of Poland (75 basis points in September and 25 bp in October) and the relaxation of the regulatory buffer. These factors have increased the credit eligibility of borrowers and underpinned demand for mortgages.
The construction sector contributes to the recovery scenario of the Polish economy. In the coming months we assume a continuation of the improvement in building construction. The situation in civil engineering will be supported by the good prospects of a rapid unlocking of EU funds, including those from the Recovery and Resilience Fund, in early 2024. Without this inflow, we would see a decrease in the inflow of funds Europeans in relation to 2023.
The prospect of an economic recovery accompanied by CPI inflation well above target means the MPC may refrain from further interest rate cuts. Our base case assumes GNP rates will remain unchanged until the end of 2024 (with the headline rate still at 5.75%).