‘South Korea’s construction industry output to contract by 2.8%’

South Korea’s construction industry is expected to contract by 2.8% in 2020, as containment measures for Covid-19 and slower economic growth due to declining exports will adversely affect the industry, according to the data and analytics company GlobalData.

Dhananjay Sharma, construction analyst at GlobalData said, “Due to extensive testing and contact tracing measures, South Korea has not had to implement strict lockdown policies and work on most of the construction projects has continued albeit with strict social distancing measures in place. However, the Covid-19 outbreak is expected to affect the country’s economy, with real GDP growth forecast to stand at -1.2% in 2020, according to latest market consensus. Industrial construction too is expected to contract in 2020, reflecting the woes of the country’s major manufacturers, which are likely to cut back on expansion plans.”

GlobalData expects that in order to offset the weakness in the industry, the South Korean government will invest in the infrastructure segment and bring forward the US$27 billion infrastructure investment plan to replace and upgrade ageing infrastructure, including roads, bridges and tunnels over the next four years.

The government has also announced several stimulus packages and has adopted accommodative fiscal and monetary policies by reducing benchmark interest rate by 50 basis points from 1.25% to 0.75%. In addition, the government has ensured that liquidity in the system remains adequate through injection of more funds into its banking system and emergency financing.

Mr Sharma concluded, “Construction activity in the residential buildings sector is expected to dwindle further in 2020 as the number of residential building permits had already declined by 24.5% in 2019, pointing to a period of severe weakness in 2020, which will be compounded by the impact on household incomes and confidence emanating from the Covid-19 outbreak.”

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