The construction industry in the South and Southeast Asia had slowed in 2019, led by a deceleration in real estate markets across many of the countries including India, which accounts for more than 50% of the region’s construction output. Prior to the onset of COVID-19 outbreak, the region was expected to regain some of its growth momentum in 2020 to post an expansion of 6%. However, in view of the growing disruption in the region, the industry is now expected to contract by 4.3%, according to GlobalData, a leading data and analytics company.
Apart from India, there were signs of weakness in some other markets in the region, in Malaysia, Vietnam and Thailand, particularly in the real estate segment. Unsold inventories coupled with rising unemployment and the liquidity crisis have adversely affected the residential segment in these countries.
The residential sector will continue to struggle as economic activity weakens, remittance declines and unemployment rises. There is a high risk that a considerable proportion of the early stage projects in these sectors will be cancelled or at least pushed back, with few new projects starting in the second half of 2020 as firms review their expansion plans.
Dhananjay Sharma, Construction Analyst at GlobalData, comments: “The lockdown has already affected the industry in the region. There have been varying degree of lockdowns, with the most severe in India, Singapore and Malaysia – during which more than 95% of the projects in the construction industry came to a complete halt with work being allowed only on essential segment projects.”
As a result, the first quarter data for several of the countries in the region has shown signs of the disruption, with Thailand witnessing the highest contraction of 9.9%, followed by Malaysia with a contraction of 7.7%, Singapore by 4%, the Philippines by 3.4%, and India by 2.2%.
There has been positive growth in Indonesia and Vietnam, with the quarterly value data growing by 2.9% in Indonesia and by 4.4% in Vietnam; however, even in these countries the growth rate has decelerated to a decade low. Moreover, with the continuing surge in COVID-19 cases across the region, and the lockdown mostly implemented during the second quarter, the decline in the construction industry is likely to be much more severe in the second quarter.
The infrastructure segment is likely to benefit from the government efforts, although in the short-term, owing to deteriorating fiscal conditions. Lower revenues due to economic slowdown and higher fiscal expenditure to sustain the weaker segments of the population would increase the debt to GDP ratio, thereby limiting government efforts for massive infrastructure investments.
Mr Sharma concludes: “However, the underlying potential in the region means that there could be a sharp recovery in 2021, followed by robust expansion in the following few years. This would be driven by the buoyant economic state and the rising middle-class population, driving consumption growth and leading to investments in housing and infrastructure. Although China is expected to rationalise its investments in the Belt and Road Initiative (BRI), investment from China will continue to boost infrastructure developments in the region.”
Read the article online at: https://www.worldcement.com/asia-pacific-rim/13072020/globaldata-south-and-southeast-asias-construction-industry-set-to-contract/
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