SINGAPORE (Aug 27): Singapore is expected to suffer the brunt of “collateral damage” as construction activity in Asia shrinks due to ongoing US-China trade tensions, according to BIS Oxford Economics.
Economist April Skinner notes that businesses are increasingly reluctant to invest as the region loses its direct connections to China.
Construction activity across 12 Asian countries – Singapore, the Philippines, Vietnam, Indonesia, India, Taiwan, Thailand, Malaysia, Hong Kong, China, South Korea and Japan – is now projected to increase by a mere 2%, bringing average growth to 6% year-on-year until 2024. This is the weakest pace of increase since 2015.
And Singapore is slated to be among the worst hit, given its strong exposure to global trade flows. This, in turn, has made Singapore’s private non-residential activity “subdued,” Skinner says.
She adds that the country’s mature construction sector “suffers from slowing economic prospects, deteriorating sentiment, capacity constraints and a weak demographic outlook”.
Meanwhile, the central business district, in particular, sees a large pipeline of commercial projects. These include the Guoco Midtown mixed-used development and another mixed-commercial development project at Central Boulevard.
Skinner opines that this “increases the likelihood of [a] supply overhang as economic fortunes and corporate profits suffer [and] dampen developer appetite for new projects in the near term”.
She notes that investments in health and education buildings, on the other hand, will bear fruit and support the ageing population and technological disruptions facing the nation.
Overall, construction in Asean is expected to grow 7% this year, and average 15% y-on-y till 2024. This is expected to be driven by heavyweights Vietnam, Indonesia and the Philippines.
Vietnam, in particular, has been a huge beneficiary of the trade war, and has seen an influx in foreign direct inflows and tourism, Skinner notes. This has, in turn, boosted its commercial developments, with several international hotel chains making progress to deepen their presence there.
The economist expects Vietnam’s total construction to grow 8% this year and average 18% y-on-y till 2024.
Over in Indonesia, Skinner says the country appears to be “re-positioning to tackle infrastructure bottlenecks [that] have been roadblocks to [its] business sector”.
It is now engaging in Public-Private Partnerships to deliver key projects, such as in energy and transport. Skinner is expecting the sector to grow 11% this year, and average at 21% y-oy till 2023.
Despite the current uncertain and mostly bleak economic outlook, Skinner says that infrastructure enhancements throughout Asean and Asia will eventually bear fruit – and form the pillar of the region’s economic development.
