Past Regional Reports
The Australian economy grew by 1.8% in the March quarter, as restrictions eased and the labour market recovered.
Unemployment is almost back to pre-pandemic levels, at a rate of 5.5%. The rate rose slightly when the government withdrew the supporting COVID-19 programs, such as Jobkeeper, but has since recovered. The labour market is still under pressure at the hands of the pandemic, due to statewide lockdowns andskilled labour shortages due to border closures.
The current Delta variant outbreaks in New South Wales and Victoria, coupled with lockdowns in capital cities, have put the recovery somewhat on hold and introduced a high degree of uncertainty. Despite the tough restrictions introduced, the economy entered into this situation with more confidence than expected, with comprehensive financial stimuli for businesses provided by the government.
The Australian construction industry recorded a contraction of 2.3% in 2020, with the value of construction work done in the first quarter declining by 1.3% year-on-year. The seasonally adjusted figure for total construction work done rose 0.8% to $52,875.5m in the June quarter, and was up 0.4% year on year. Some of the key June quarter performance indicators are outlined below:
Government schemes like HomeBuilder and Solar Upgrade have been supporting the growth of residential construction. According to the ABS, the total number of dwellings units approved in the country rose by 36.6% in the first five months of 2021.
The challenges caused by border closures and the resulting disruption of the supply chain, together with the skilled labour shortage, remain a concern, and are impacting schedule and cost. Construction sites closing in New South Wales for two weeks in July and the following limitation of 50% capacity on sites have proven particularly impactful. For example, the Sydney lockdowns are estimated to have cost the city between AU$800 million – AU$1 billion.
The Australian construction industry is expected to record a recovery over H2 2021 and expand by 2.3% in real terms for the full year, after the abovementioned 2020 contraction. It is forecasted that building activity will be highest in both Sydney and Melbourne. However, the volatility in terms of COVID outbreaks remains a downside risk for the industry.
Following the release of the state budget in May 2021, it is clear that the government is endeavouring to support the construction industry with considerable investment of AU$4.4 billion allocated to the mining, manufacturing, and construction industries. Further investment of AU$12.1 billion is also expected over the coming three fiscal years. There is additional investment of AU$ 15 billion planned for infrastructure over the coming decade, on top of the ten-year infrastructure investment already laid out.
In the more medium term, the annual growth rate is expected to be 3.4% on average between 2022 and 2025, with transport investments, energy, residential and telecommunications all playing a part.
Material escalation will continue to be influential in the market, as will supply chain disruption, with more analysis of this to follow in our upcoming, dedicated report on this subject matter.
Contributors: John Carleton and Albena Spasova
Singapore’s economy posted a record contraction of 5.5% overall in 2020, which is its worst full-year performance since independence in 1965. Q2 of 2021 has seen economic growth of 14.7%, and this is likely a result of many market sectors resuming a degree of normal business activity, as more stable COVID-19 workplace restrictions are imposed by the government. The Ministry of Trade and Industry’s GDP growth forecast for 2021 has been raised to 6-7% from the previous figure of 4-6%. However, the pandemic’s impact on other parts of the world as economies reopen and subsequent outbreaks ensue may in turn impact external demand, and be reflected in Singapore’s performance.
The GDP contribution of the construction industry contracted by 35.9% at the end of 2020 as a result of the pandemic and the resulting changes in business practices. The industry recorded 4.5% growth in Q1 of this year, but a contraction of 11% as of Q2 of 2021. The Q2 contraction is likely a result of Work From Home (WFH) measures being imposed again.
Construction is divided into two sectors – public and private. In 2021, the industry is forecasted to improve, with the public sector expected to make up the greater value of awarded contracts at approximately S$16.5 billion and approximately S$9 billion in the private sector. Contracts awarded in 2020 stood at a value of S$13.2 billion in the public sector and S$8.1 billion in the private sector.
The construction industry is likely to improve in 2021, albeit from a low base. Current projections by the Building and Construction Authority (BCA) for 2021 indicate that the value of contracts awarded will be comparable to 2019 (pre-COVID). With 70% of the Singaporean population having received their vaccines (as of mid-Q3 2021), business activity is likely to improve as restrictions continue to ease. As expected, some sectors are more affected than others.
Despite the numerous government bailouts to the local economy, public spend on rail has remained strong. The LTA (Land Transport Authority) awarded four Jurong Region Line (JRL) contracts worth S$682m on the 17th July 2020, with construction having begun on two of the stations at the end of May 2021 and are expected to be completed by 2029. Two civil contracts with a total value of S$933 million were also awarded in November 2020 for the Rapid Transit System (RTS) link between Johor Bahru and Singapore, and construction commenced in January 2021.
Although the High Speed Rail (HSR) Project linking Singapore and KL had been deferred again until 31 December 2020, it has recently been cancelled. Recent estimates for the capital already invested in the project by the Singapore government range from S$240-280 million. This project was halted due to the insurmountable differences between the Singapore and Malaysian governments on the terms of the contract and not a consequence of COVID-19. This resulted in a settlement paid by Malaysia of almost S$103 million in March 2021.
In 2021, discussion in Singapore parliament lead to a temporary pause on the building of new data centres. The main concern of authorities is around the environmental impacts and energy usage of data centres, with facilities using 7% of Singapore’s total electricity consumption in 2021. With resource consumption expected to increase as new facilities are constructed, authorities are observing options where industrial, environmental and society needs can be met before approval is given to more data centre projects.
By the end of 2020, S$2.7 billion of contracts were awarded for private residential units, compared with almost S$5 billion in 2019. The supply of residential units has increased in 2021, with a greater number of applicants for new units in upcoming projects.
As of 2020 there were 13,083 units completed under the Housing Development Board (HDB), which is a decrease of 2,655 units on 2019. With demand for units in 2021 expected to increase and construction resuming, more units are likely to be constructed by the end of the year. A total of 73,553 units were under construction in 2020, compared with 69,457 units in 2019.
Given the uncertainties about the future of the aviation and travel industry as a result of COVID; Singapore has paused the construction of Changi Airport Terminal 5 (S$10 billion) for at least two years.
The first half of 2021 saw a significant increase in the demand for offices, with 68,000sq.ft. of space being acquired by the market. The total demand in 2021 is expected to be six times that of 2020.
The vacancy rate has steadily increased, however, as the supply of office space has outpaced demand in 2021. Supply totalled circa 359,000sq.ft. in the first half of the year, compared to the lack of supply seen in the second half of 2020. The majority of new leases signed in 2021 have come from the financial and technology sectors.
Overall vacancies in the Central Business District (CBD) climbed to 4.2% in Q1 of 2021, which is the highest recorded vacancy rate since 2018. This is a result of more organisations adopting a hybrid working environment, and therefore less office space being required.
Given that tourism has all but stopped thanks to quarantine requirements, it is likely that investment in this sector will be postponed. The large numbers of redundancies in the hospitality sector is a strong indication that hoteliers are still facing acute challenges at the hands of the pandemic.
The Singaporean government launched Singapore Rediscover Vouchers in December of 2020, in an effort to encourage local tourism. The total value of the vouchers issued was S$320 million. The vouchers were used by the population, which in turn encouraged further spending in the sector. Q1 and Q2 of 2021 saw a marginal increase in foreign tourism, especially from China, as quarantine requirements were eased for certain countries. The sector is expected to improve further towards the end of 2021, as possible vaccination ‘passports’ may help to ease the entry requirements for foreign tourists into the country.
In the longer term, organisations are encouraged to push for automation in order to reduce reliance on migrant workers. The public sector, for example, HDB, will continue to take the lead in adopting DfMA (Design for Manufacture and Assembly) in their building projects, whereby 75% of all its units launched in 2020 adopted DfMA methods, such as Prefabricated Pre-finished Volumetric Construction (PPVC) or Advanced Precast Concrete System (APCS).The transformation efforts have also led to the redesign or creation of new and better jobs within the sector, such as digital lead and DfMA production manager.
The BCA is currently nominating specialist, local DfMA factories to produce mechanical and electrical skids and risers. The construction industry is being driven to use these specialist factories to produce the MEP services, in order to help with reducing the reliance on foreign workers.
In 2021, new COVID measures have been made mandatory in the construction industry as part of an organisation’s Standard Operating Procedures (SOP). Some of these measures include:
The construction industry has seen marked improvement in 2021, as noted above. The final quarter of 2021 is expected to show further improvement, in comparison to the beginning of the year. The main factors affecting this growth are vaccination programmes administered in Singapore, more stable government workplace policies, easing of COVID-related restrictions, and the public having become accustomed to living and working in COVID conditions.
In 2022, the economic contribution for the public sector aspect of construction is forecasted to remain similar to 2021, at a range of S$16-$20 billion over the course of the year. Private sector contributions are projected to steadily increase, as it is expected that as the percentage of vaccinated workers grows, the government is likely to ease more workplace COVID restrictions. Neighbouring countries, such as Malaysia and Indonesia, on which Singapore is heavily reliant for material imports, have been moving in an out of COVID lockdowns, and this creates a degree of unpredictability associated with the construction industry’s performance in Singapore.
The performance of the industry from 2022 onwards is forecasted improve upon 2021’s S$25-S$32 billion in contracts awarded annually. This is largely made up of rebounding demand in the private sector, as the public sector is set to be maintain a performance of S$14-S$18 billion in contracts awarded up to 2025.
The increase in private sector productivity is largely related to the expected increase in business activity, as normality looms and the world to better manage COVID. However, it is important to note that there are other challenges and risks affecting the industry in Singapore also, with major supply chain disruption, as well as material and labour cost increases.
Contributor: Stephen McArdle
The Ministry of Statistics and Programme Implementation reported economic expansion in Q2 2021, measured in 2011-2021 prices, of 20.1% year-on-year. This was a much-improved performance on the contraction seen in 2020 and the modest growth of 1.6% seen in Q1 2021. However, it is important to note that this is against a low base for the corresponding quarter in 2020. The full-year GDP contraction for 2020 was 8%, according to the IMF.
The economy expanded by 9.3% year-on-year in cumulative terms in H1 2021. Construction registered the highest growth during that period (31.8% year-on-year), followed by manufacturing (23.2%) and energy and utilities (11.7%).
As restrictions ease and the domestic economy stabilises after the volatility caused by the second COVID wave, public and private consumption are normalizing. Inflation of 6.2% was seen in 2020, but is expected moderate this year. As of September 2021, unemployment had fallen to 6.9% from the 8.3% recorded in August. According to the Centre for Monitoring Indian Economy (CMIE), a significant proportion was in construction, particularly in rural areas.
As noted in our March update, the construction industry in India was particularly impacted by the pandemic, with the strict lockdown measures imposed taking their toll, and a contraction of 12.3% was seen. Following a particularly sharp drop of almost 50% in Q2 2020, the industry’s value-add in real terms contracted by 12.3% over the full-year 2020, in spite of a modest recovery late in the year.
Infrastructure is the sector with the highest number of projects in the pipeline, covering road transport, rail, petroleum, coal, power and water resources. One notable project underway in this sector is the Diamond Quadrilateral – a high-speed rail network to connect India’s four major cities and their surrounding areas – Delhi, Kolkata, Chennai and Mumbai. The Indian government is also focused on growing the share of total installed power capacity accounted for by renewable energy, from the current 35% to 60% by 2030. The government also plans to invest INR4.5 trillion (US$60 billion) on gas infrastructure by 2024.
The RBI expects the Indian economy to expand by 9.5% in the 2021-2022 financial year. This aligns with the IMF’s July 2021 forecast - 9.5% growth in 2021 and 8.5% in 2022.
The construction industry’s recovery is well underway, with 15.9% growth in real terms expected this year, albeit against a low base. However, further investment in infrastructure is also driving this, and it is expected that the industry output will outpace pre-COVID output this year. The ministries which received the maximum allocation of capital expenditure for the current financial year following the 2021-2022 budget include the Ministry of Road Transport and Highways (19.5%), Ministry of Railways (19.3%), Department of Economic Affairs (10.2%), Department of Telecommunications (4.7%) and the Ministry of Housing and
Contributor: Darshan Joshi
COVID-19 caused considerable disruption for Malaysia in 2020, with GDP contracting by 5.6% as compared to 4.3% in 2019. In Q1 2021, GDP at 2015 constant prices fell by 0.5% year-on-year. The downturn in GDP is attributable to declines in household and capital spending, due to COVID restrictions. Inflation for 2020 was recorded at -1.1%.
Malaysia’s unemployment rate was 4.8% as of Q2 2021, marking the third consecutive quarter at that rate. Various extents of Movement Control Orders (Recovery Movement Control Order (RMCO) to Full MCO) have impacted, but an improved year-on-year performance was observed due to the low base numbers in the corresponding 2020 period.
Malaysia’s construction industry was not performing well prior to the outbreak of COVID-19, with just 0.4% real output growth in 2019. A sharp contraction was seen in 2020 at 19.4%, but 2021 has fared better, with growth being driven by investment in transportation and energy projects. This recovery is more so a rebound from a very low base as opposed to a genuine resurgence.
A considerable share of government investment is going towards transport infrastructure, with notable allocations including MYR15 billion for the Pan Borneo highways and the Johor Bahru – Woodland MRT3 line, the 665km, MYR54 billion East Coast Rail Link (ECRL) project.
Residential and commercial both felt the impact of COVID-19 in 2020, and recovery in both sectors is expected to be gradual. Commercial, which had been in decline since 2018 contracted by 17% in 2020. Office vacancy rates increased in 2020, as work from home measures and uncertain conditions took hold. Residential is the second-largest sector for Malaysian construction, although, the value of residential construction work completed continued to fall in Q1 2021, with a year-on-year decline of 4.2%. Loan disbursements for residential purchases grew by 34.9% year-on-year in the first five months of 2021, but this is largely attributable to the low base set in 2020 and is down 0.1% on the corresponding period in 2019. The government’s affordable housing scheme will bolster the sector, with one million units planned by the end of 2029. Non-residential construction work completed declined by 5.3% in Q1 2021 on a year-on-year basis, following a contraction of 6.3% in Q4 2020.
Following a further wave of COVID-19, the World Bank reduced its economic growth forecast for Malaysia for 2021 from 6% to 4.5% in 2021.
In 2021, the construction industry is forecast to record growth of 11.2%, and between 2022 and 2025, average real annual growth of 6.4% is expected. However, output is not expected to recover to pre-downturn levels until 2023. The year’s performance is likely to be curtailed by the various lockdowns that have been seen, whereby all non-critical construction works were suspended.
Commercial construction is expected to post a gradual recovery, hampered by lingering restrictions. The sector is anticipated to grow by 7.9% this year, and then 5.7% on average each year from 2022 to 2025. However, a rebound to pre-COVID levels is not expected until 2024.
Residential output is expected to remain subdued in the near term, with weak demand for housing impacting. In the 2021 Budget, MYR2.7 billion was allocated towards rural infrastructure, with MYR1.3 billion of this for the implementation of 920km of road projects, MYR632 million for the improvement of the water supply infrastructure, MYR355 million towards the house assistance program, MYR250 million towards the electricity grids and MYR121 million for street light installation and maintenance. A further MYR1.5 billion was committed for the repair and upgrading of educational infrastructure.
Contributor: Ciaran McNally
China’s economy continues to recover from the COVID-19 pandemic, but growth is uneven, with GDP increasing by 12.7% through the first half of 2021, putting the country on track to meet its growth target of over 6%. In Q2 2021, the real GDP growth stood at 7.9% compared to the same quarter of the previous year. In 2020, the country ranked second globally in terms of countries with the largest GDP.
Since the introduction of economic reforms in 1978, the country has experienced rapid social and economic development. In 2013, it became the world’s largest trading nation, overtaking the United States. However, per capita GDP in China was still much lower than that of industrialised countries. Until 2011, the annual growth rate of China’s GDP had constantly been above 9%. However, economic growth has cooled down since and is projected to gradually slow fin the future. Rising domestic wages and the competitive edge of other Asian and African countries are seen as main reasons for the stuttering of China’s economic engine. One government strategy to overcome this transition is a gradual shift of economic focus from industrial production to services.
During Q2 of 2021, the unemployment rate stood at 3.86%. The monthly surveyed unemployment rate of urban areas in China, which is normally higher than the registered unemployment rate, was recorded at 5% in June 2021. It did not indicate a lasting impact from the pandemic on Chinese unemployment rates. The effective wage growth in 2021 averages 4.30%, which is 0.51 percentage points higher than the initially projected 3.79% wage increase for 2021. China is the world’s most populous country and its rapid economic development over the past decades has profited greatly from its large labour market. While the overall working conditions for the Chinese people are improving, the size of the working-age population in China has been shrinking steadily in recent years due to an aging demographic and low birth rate.
China has and will continue to implement proactive fiscal policies and prudent monetary policies in 2021 amid efforts to maintain the necessary support for economic recovery. Science and technology will be key areas for the country's fiscal expenditure in 2021, supporting the development of core technologies
Construction accounts for approximately 7% of Chinese GDP, and the market constitutes the largest construction market in the world. Its construction industry has continued its recovery, following the severe disruption caused by the pandemic-induced lockdown in early 2020, registering growth of 3.5% in 2020. The swift recovery was due in part to the fast tracking of major infrastructure projects. According to the National Bureau of Statistics (NBS), the construction industry’s value-add grew by 22.8% year-on-year in Q1 2021, following year-on-year growth of 6.6% in Q4, 8.1% in Q3 and 7.8% in Q2 of 2020.This reflects the halt of construction work across most of the country upon the outbreak of the pandemic.
Looking at the data centre sector, market value is set to grow by 20.8% this year, with the longer-term outlook being US$55.3 billion growth by 2025, representing a CAGR of almost 24% between 2021 and 2025. China has officially kicked off the construction of computing power hubs for an integrated national data centre, as the country seeks to tap the value of massive data resources more efficiently. The country had earlier released a guideline on the relevant construction in eight key regions, including the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and Guizhou Province.
The Chinese pharmaceutical and healthcare industry is one of the largest markets in the world, and it is the second largest drug market globally, considered a global leader in drug innovation and development. The government is looking at healthcare and pharmaceutical reforms in the coming years, as it seeks to provide quality healthcare to its population's increasing demand. On March 5th 2021, institutional healthcare reforms were announced, in line with China's 14th Five-Year Plan (2021-2025). Overall, Chinese life science funds were estimated to raise 180% in 2020, reaching about US$42 billion.
After contracting by 9.8% in 2020, commercial construction indicating recovery, with the total floor space of commercial buildings under construction growing by 1.7% in Q1 2021. The largest sector for Chinese construction in 2020 was residential, representing 44.1% of the industry’s total value. While it contracted by 0.8% in 2020, driven by sharp drops in new sales, which in turn affected investor confidence in the short term, we expect a recovery to be posted this year, spurred on by various market dynamics, including continued urbanisation, and public and private investment.
In terms of materials pricing, as China began to emerge from the worst of the pandemic, the government introduced a series of fiscal stimuli targeted at infrastructure development – roads, bridges, broadband networks, utilities and rail networks. As a result, the prices of metals, in particular, including nickel, copper, iron ore and zinc increased, although this has moderated in Q2 2021. Robust steel demand is being seen in-market, with 50 iron ore mine projects reported to be currently under construction, planned or expanding in China, with a total capacity of around 340 million mt per year. This could increase the country’s iron ore concentrates production by 105 million mt per year, and it is thought it could have the potential to supply 22% of its domestic iron ore demand in 2025, up from 19% in 2020.
China is the world’s largest importer of timber and the second-biggest timber consumer. Construction timber prices in China soared as the pandemic wreaked havoc on imports, from 1,500 yuan ($228.45) per cubic meter last year to 1,900 yuan in March 2021, a new record. However, this is expected to be a temporary pinch point that will moderate. It is worth noting that the robust demand in China for materials is being pointed to as one of the core driving factors behind what some are referring to as a ‘supercycle’ with regard to the global commodities market.
The IMF expects growth of 8.4% in 2021 as the recovery drives on. Exports will remain robust, with the overall growth rate expected to moderate somewhat in H2 2021, and it is anticipated that China’s fiscal and monetary policies will be gradually normalized.
2021 marks the start of China's 14th Five-Year Plan, as referenced above. As the domestic economy recovers, China's financial system will develop steadily, and the government is expected to focus on the quality of growth, initially via supports for SMEs and consumers, in an effort to address the uneven recovery between investment and consumption. The biggest potential threats for China’s performance are external, particularly increased frictions with the U.S. once again.
The construction industry is forecast to grow by 7.7% in 2021, and total construction spending is likely to reach US$1.45 trillion, up 1.3% from 2020. Under this scenario, employment will increase by 430,000 this year from actual employment of 7.8 million in 2020. In the more medium term, average annual growth of 4.2% is forecast for 2022-2025. Investments on new infrastructure projects will be a significant contributor to this growth, which will also include investments in the areas of 5G networks, Artificial Intelligence, the Internet of Things and data centre infrastructure, in addition to transport. According to the government-backed China Electronic Information Industry Development (CCID), expenditure of CNY10 trillion is anticipated for new infrastructure projects between 2020-2025. Investment in renewables will also be a key growth driver, with energy and utilities expected to see 5.8% growth in 2021. There is a big focus on this sector, with an additional 180GW of power expected to be added by the end of this year, of which 140GW will be renewable power. It is expected that commercial construction will record growth of 10.2% in 2021, and 7.7% average across 2022-2025, while residential will recover in 2021, as increased investment is seen, and the government pushes ahead with plans to renovate 220,000 aging urban residential communities by the end of 2025, which will impact 39 million households.
Contributors: Helen Jie Shao and Cathy Hu