“Unprecedented sharp contraction” leaves Asian construction scarred this year

Construction output in South and South-East Asia will contract by 8.5% in 2020 owing to Covid-19, says analyst GlobalData.

The firm points to the "unprecedented sharp contraction" in the second quarter in countries such as Singapore, where output slumped by 59.3%.

Dramatic contractions were also seen in India (50.3%), Malaysia (44.5%) and the Philippines (33.5%).

However, if second waves of infections don’t materialise, output could rise sharply in 2021 because of the "low base effect" and the underlying potential for growth in the region given the rising middle class and investment in housing and infrastructure, GlobalData said.

Another factor in the region’s favour is industrialised countries seeking to diversify supply chains away from China to other countries with low labour costs.

Infrastructure holds key

GlobalData construction analyst Dhananjay Sharma said: "Infrastructure is expected to be a key growth driver in 2021 and beyond as governments across the region look at investments in infrastructure to stimulate the economy and create jobs.

"This would be aided by in Chinese investments in Belt and Road Initiative (BRI) projects in the South and South-East Asia region, which will support infrastructure growth in Pakistan, Bangladesh as well as ASEAN members including Myanmar, Vietnam, Malaysia and Indonesia. Increasing investments in renewable energy projects and in 5G infrastructure would also support growth over the medium to long-term."

Housing uncertain

The residential market was weak in several countries in the region even prior to the Covid-19 outbreak, but the pandemic and the subsequent lockdowns have worsened the situation.

The sector will continue to struggle as economic activity weakens, remittances decline and unemployment rises. Unsold inventories will further put pressure as developers would hold off or cancel projects in the short-term.

Nevertheless, the company said, over the medium to long-term period, the rising middle-class population will create demand for housing, which would drive growth in the residential market with support by the respective governments for affordable housing segment.

Collapse in tourism

The commercial sector is expected to be severely affected by the virus outbreak. Investments in the commercial market are expected to be cancelled or pushed back reflecting the collapse in the travel and tourism industry.

Sharma concludes: "The industrial sector is expected to suffer in the short-term, affected by the temporary shutdown of the production units of various companies across the region. This will affect the investments as companies could cut back on their expansion plans. However, in the long-term, the industrial construction segment is likely to benefit from the US-China trade war as well as the move to diversify supply chain from China following the disruption in early 2020."

Image: Workers, masked, in Macau (Macau Photo Agency/Unsplash)

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