GlobalData shares its forecasts for construction industries across the world in the midst of the coronavirus pandemic.
The revised and further-cut construction output growth forecast for the Middle East and North Africa (MENA) region for the year 2020 is -1.1%, down from the previous projection of -0.8% (as of mid-April) and 4.6% (Q4 2019 update) due to the soaring COVID-19 cases in the region, and the subsequent curfews and lockdown measures, according to GlobalData, a leading data and analytics company.
Yasmine Ghozzi, Economist at GlobalData, says: “The slump in oil prices will dent the sector’s growth. GlobalData expects cutbacks in spending and, in particular, cuts to capital spending on infrastructure, especially for oil and gas dependent countries given that investment plans were set on assumptions for oil at US$50 – US$80 per barrel. The IMF currently predicts that GDP growth in the MENA region will fall to – 3.3% in 2020 because of its exposure to lower oil prices and the extensive disruption in travel and tourism.”
Governments across the MENA region offered direct support to boost activity in construction and infrastructure. In the case of Egypt, for example, the government guided construction companies operating in public projects are set to resume work in full capacity by early April, following a period of two weeks of reduced business.
For Saudi Arabia, the biggest construction market in the region, the country’s finance minister announced plans to make deep cuts to public spending, so any further stimulus to the construction sector would rely on the amount of reserves the government is willing to draw upon, given the limit that lower oil prices have put on government revenues.
It remains to be seen whether governments in the region will lend direct support to companies facing acute financial pressure in the sector.
Ghozzi concludes: “In addition, construction, real estate, and oil and gas sectors are among the most exposed to the business risks created by COVID-19. Force majeure clauses in contracts are being more widely used by firms needing to scale back or rearrange their business plans amid the pandemic. The issue came under the spotlight when the Iraqi government announced the pandemic as an event of force majeure for all projects and contracts. Although construction sites are generally exempted from the lockdowns imposed in many countries in the MENA region, there is an expectation that legal claims, especially from contractors, will be filed citing the crisis as a justifiable reason for failure to deliver work on time.”
The Indian construction industry is expected to contract by 1.7% in 2020, as the slowdown in 2019 has been compounded by the two-month lockdown due to COVID-19, says GlobalData, a leading data and analytics company.
The slowdown in the construction industry in 2019 was due to liquidity crisis and slowing domestic demand in the residential segment. Although the situation was expected to improve in 2020 due to government initiatives such as improving liquidity position and expanded infrastructure investments under the ‘National Infrastructure Programme’, the COVID-19 outbreak and the government containment measures will affect the construction industry in the short-term.
Dhananjay Sharma, Construction Analyst at GlobalData, comments: “The residential sector, which was already facing weakness due to the liquidity crunch and a decline in new residential projects launched across major cities, will struggle to recover due to the supply and demand downturn that will be created by the lockdown. Construction work on residential projects across the country will be delayed amid the lockdown, while the temporary unemployment will have an impact on the income of people, thereby affecting demand for residential buildings over the short-term.”
Recently, India announced an extension of the lockdown by another two weeks, until 31 May 2020 – taking the total lockdown period to 69 days. However, the government has eased restrictions on economic activity across most of the country except in the containment zones.
Sharma concludes: “In the second half of the year, the construction industry will benefit from the oil price crash, which would slash the country’s import bills and help the government to invest heavily on its flagship ‘National Infrastructure Pipeline’.”
Prior to the COVID-19 outbreak, the Philippines construction industry was growing at a robust pace due to the ongoing infrastructure investment and the launch of the Philippine Construction Industry Roadmap 2020 – 2030. However, with the government announcing strict measures to slow the spread of the virus, construction output growth forecast for 2020 is expected to slow down to 1.2% from 8.0% before the COVID-19 outbreak projection, says GlobalData.
In a positive development, the country has started to partially ease restrictions due to the economic strain. All public and private construction projects were allowed to resume in areas under the General Community Quarantine (GCQ) from 15th May 2020, while in the areas under the Enhanced Community Quarantine (ECQ), a select type of priority construction projects were allowed to resume.
Dhananjay Sharma, Construction Analyst at GlobalData, comments: “The country’s construction industry is still expected to benefit from large-scale infrastructure projects, which will likely be advanced when the COVID-19 spread is contained. On 13th May 2020, all major infrastructure projects under the Build, Build, Build (BBB) programme were allowed to resume.”
Prior to the outbreak, the government had planned to invest around PHP1 trillion (US$18.9 billion) on the BBB programme this year, and the implementation of the programme could play a major role in the post-pandemic economic recovery of the country.
Sharma concludes: “However, the residential market was already struggling due to slowing domestic economy before the virus outbreak. The market is facing further risk as the economy is expected to slump in the second quarter and people take more precautions with regards to property purchases.”
Read the article online at: https://www.worldcement.com/africa-middle-east/22052020/globaldata-construction-output-in-mena-region-to-decline-further-due-to-covid-19-outbreak-and-oil-price-collapse/