‘Covid-19 outbreak to shrink construction output in South and SE Asia’

As the economies and the construction industries across South and Southeast Asia are severely disrupted by the Covid-19 outbreak, the construction output in the regions is set to contract in 2020. However, the industry will recover and continue to be supported by investments in infrastructure projects, according to data and analytics company GlobalData.

The outlook for construction across Asia seems gloomy, reflecting the immediate impact on construction from the lockdown measures as well as the deterioration in prospects for growth in the wider economy. GlobalData now expects construction in the region to contract by 0.9% compared to the previous forecast of 1.6% growth, and the pre-Covid-19 projection of 6%.

Governments across the region are trying to combat the economic strain brought as a result of the pandemic by announcing fiscal stimulus packages, particularly supporting the tourism and airlines industry, and adopting accommodative monetary policy.

In India, reflecting these widespread lockdown, GlobalData expects the construction output to contract by 1.7% in 2020, with the weakness in the real estate sector being compounded by rising unemployment, declining remittances and a liquidity crunch with thousands of small and medium-sized enterprises (SMEs) facing closures.

Danny Richards, lead economist at GlobalData said, “There is scope for support coming from the infrastructure sector in the second half of 2020, with a government task force announcing a planned investment expenditure of US$14.8 billion on the government’s flagship National Infrastructure Pipeline (NIP) during 2019-2025 – 40% of the projects are already under implementation.”

The historic drop in oil prices is expected to benefit India as a net-importer, potentially providing extra funding for NIP projects.

Reflecting the recent Covid-19 related disruption and the weaker outlook for economic growth in Indonesia, GlobalData has revised down its construction output growth forecast for 2020 with the industry now forecast to grow by just 0.5%. Owing to travel bans, the country is expected to lose US$4 billion in tourism revenue, severely affecting the commercial segment.

Mr Richards added, “Up to 5.2 million Indonesians could lose their jobs due to the pandemic, which will weaken the demand for new housing and curtail investments in the residential market.”

GlobalData has also revised down its forecast for Malaysia’s construction output to 3.8% in 2020, compared to a previous projection of a 2.5% contraction in mid-April update.

Mr Richards concluded, “The residential market was already struggling due to rising building costs, shortages of skilled labour, and huge unsold inventories, and this will be exacerbated by rising unemployment.”

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