Construction Sector Posts Negative Growth in First Quarter of 2019

The "Ready-Mix Concrete Index" March 2019 Report was released by Turkey Ready-Mix Concrete Association (THBB). The report noted that activity levels in the construction and related sectors remain low. The report highlighted that improvements in the sector would be difficult without resolving weak demand and access-to-finance issues. Turkey Ready-Mix Concrete Association (THBB) releases the "Ready-Mix Concrete Index" report monthly, presenting the current situation and expected developments in the construction sector and related manufacturing and service industries. Ready-mix concrete, as is well known, is one of the most basic inputs to the construction sector and is used directly in construction projects shortly after production, without stockpiling. For this reason, the Index related to ready-mix concrete is one of the most important indicators demonstrating the growth rate of the construction sector. In the Ready-Mix Concrete Index March 2019 Report, all indices falling below threshold values indicated low activity in construction and related sectors and weak expectations for revival in construction activities. The Confidence Index registering as the lowest index pointed to the insufficiency of measures targeting the construction sector in achieving desired effects. From the report, it is clear that improvements in the sector would be very difficult without resolving weak demand and access-to-finance issues in particular. According to the Ready-Mix Concrete Index March 2019 Report, two indices other than the Activity Index showed declines compared to the same period in the previous year. Following a slowdown in the pace of slowdown in activity over the last three months, the Activity Index reached positive value this month. However, the Activity Index remaining below threshold value may mean that this positive movement does not carry significant weight. Both the expectation and confidence indices showing declines compared to the same period last year reduce the likelihood of sector recovery in the upcoming period. Yavuz Işık, Chairman of the Board of the European Ready-Mix Concrete Association (ERMCO) and THBB, evaluated the results of the Ready-Mix Concrete Index March 2019 Report. Işık underscored that activity levels in construction and related sectors are low. For sector improvement, he stated that weak demand and access-to-finance issues must be resolved, and without these, sector improvement would be very difficult. Yavuz Işık said, "The Turkish economy needs the construction sector to continue on the growth path set in the New Economic Program and to create desired employment levels. However, early year indicators show that the construction sector contracted in the first quarter. Residential sales across Turkey declined by 21.5% in the first two months compared to the same months in the previous year. Mortgage-backed residential sales declined by 72.7% in the first two months compared to the same period in the previous year, reaching only 15,427 units. The decline of mortgage-backed sales' share in total residential sales to 10% demonstrates how deeply current interest levels are affecting the construction sector." Assessing the New Economic Program Structural Transformation Steps announced recently by the government, Yavuz Işık said that managing non-performing assets through a Real Estate Fund to be established would be an important step toward resolving problems in the construction sector.

Chart 1: Index Values

Source: THBB

Chart 2: Change in Index Values (Compared to Same Month Previous Year, %)

Source: THBB