Construction industry growth seen slowing but outperforming

CONSTRUCTION INDUSTRY growth could outperform its regional counterparts over the next decade, despite the current slowdown caused by declining investment, with growth also losing momentum when compared with the 2006-2019 period, Oxford Economics said.

In its Global Construction Outlook issued Monday, Oxford Economics said it forecasts a “robust” 5.5% average annual growth rate for the construction industry in the 2019-2030 period, against a projected regional average of 4.2%. Growth going forward will be significantly slower than the 9% rate posted in 2006-2019.

The domestic construction market was also estimated at $117.5 billion by 2030, against $65.2 billion in 2019.

“This is due to fixed investment spending falling by a similar rate,” it said.

Civil engineering is expected to expand by 6.4% per annum going forward, becoming the fastest-growing sub-sector because of the government’s support for infrastructure projects. The sub-sector’s output is projected at $59.4 billion by 2030, nearly double the 2019 level of $29.9 billion.

Oxford Economics cited strong funding support for road and rail infrastructure development and the Philippine Energy Plan, which seeks to drastically increase the installed base of renewable energy generators over the next 20 years.

The government is planning to spend P1.107 trillion on infrastructure next year, or just under a quarter of the overall P4.5-trillion spending plan for 2021 as the administration enters its last full year in power. The economic managers have also positioned infrastructure as a possible driver of the economic recovery.

Oxford Economics expects the residential sub-sector to grow by 4.8% annually in 2019-2030 to about $40.6 billion by the end of the period, against $24.2 billion in 2019.

The non-residential segment is seen to post the slowest growth at 4.3% each year in the next decade. Its value will likely increase 59% to $17.5 billion by 2030 from $11 billion last year.

The think tank sees the Philippine economy growing by an average of 5.5% per year over 2019-2030, with its population inching up 1.2% to 123.9 billion by 2030 from 108.3 billion last year.

“We also forecast urban population to expand at a faster rate than total population, with the result that Philippines’s urban population is 53% of total population by 2030. Consequently, Philippines’s urban citizenry will increase by 14,750,000 over the next decade,” it said.

Oxford Economics projects the Philippine construction industry to be among the fastest growing across 50 countries it monitored, alongside Kenya, Nigeria, Vietnam and Indonesia, which it pegged as potential members of the 5-6% growth club.

It said the construction sector in India will be expanding at the fastest pace globally at 6-7%, and could overtake Japan as the world’s third-biggest construction market at $400 billion.

“Given the outlook for the key drivers in emerging markets tend to be more favorable, they will generally experience more rapid construction growth than developed economies, as they have in the past. By 2030, we expect them to account for nearly 60% of total construction activity,” it said.

Oxford Economics expects construction output to rise 35% to $5.8 trillion worldwide by 2030 despite the impact of the coronavirus pandemic. Some two-thirds of global growth will be coming from China, the US, India, and Indonesia, while ASEAN countries are expected to account for over 10% of the expansion.

It said construction activity will bounce back faster than the broader economy as lockdowns are loosened, because demand in the industry is less directly affected by consumer spending, while low interest rates support the financing of construction projects.

“The baseline outlook for a relatively rapid recovery in construction activity next year hinges critically on our assumption that an effective COVID-19 vaccine is developed and rolled out early next year, and that there are not widespread second waves of infection that necessitate further lockdowns,” it said.

“If either of these assumptions does not materialize, the strong growth predicted for next year is severely at risk,” it added. — Beatrice M. Laforga

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Article and Photo originally posted by Business World last September 8, 2020 6:25pm.

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