Singapore construction sector to shrink 10.3 per cent this year: Fitch Solutions

Singapore's Ministry of Trade and Industry (MTI) said yesterday that it does not take advantage of the flexibility in negotiating agreements that developing countries in the WTO are allowed. PHOTO: ST. Sketched by the Pan Pacific Agency.

SINGAPORE, Apr 29, 2020, The Business Times. Singapore’s construction sector is poised to take a hard hit from the Covid-19 outbreak in the short-term, and is now expected to contract sharply by 10.3 per cent this year in real terms, according to Fitch Solutions, The Straits Times reported.

This is down from its previous forecast of a 3.2 per cent contraction, making Singapore the worst hit market in the Asia-Pacific region, the market insights firm said in a research note released on Wednesday (April 29).

Its latest view is informed by the government’s decision to temporarily suspend all construction work as part of tighter circuit breaker measures to curb Covid-19 transmission, following the spike in the number of confirmed Covid-19 cases in various dormitories housing construction workers.

A handful of dormitories had since been gazetted as isolation areas since early April, which restricts residents from leaving the dormitories. Soon after on April 20, the Ministry of Manpower issued stay-home notices to all work permit and S Pass holders in the construction industry, mandating these workers to stay in their dormitories for a period of 14 days from April 20 to May 4, Fitch noted.

This effectively brings the construction sector to a “virtual standstill”, as manual labour in the industry is almost completely dependent on foreign workers residing in these dormitories, the report said.

Moreover, Fitch noted that Singapore’s circuit-breaker measures have been extended till June 1, and believes that tougher social distancing measures will remain in place for workers residing in dormitories and at worksites thereafter. This would result in additional challenges for contractors and further delays in project timelines, Fitch added.

It also expects the government to ramp up Covid-19 testing for foreign workers, before allowing them back to their worksites.

“As of April 28, the government has reported that more than 21,000 tests have been conducted on migrant workers, representing only 6 per cent of the migrant worker population. Construction activity is still expected to gradually recover in H2 2020, but will not return to 2019 levels this year,” the report stated.

Given falling foreign direct investments as a result of low business sentiment worldwide, Fitch expects Singapore’s buildings sector to be harder hit than the infrastructure sector.

“While the labour crunch is expected to be experienced by all construction projects across the island, slowing investments in the buildings sector in late 2019 will translate to lower construction activity in 2020. We forecast the buildings construction sector to shrink by 11.5 per cent year on year, a drop of 6.3 percentage points from our previous forecast of -5.2 per cent,” the report said.

In particular, Fitch expects the industrial buildings sector to underperform the wider construction sector.

Noting that the “circuit-breaker” measures have adversely impacted the finances of numerous small and medium enterprises (SMEs), Fitch anticipates that the level of capital expenditure by SMEs to “fall dramatically” this year, as companies prioritise solvency over expansion.

Separately, Fitch expects contraction in Singapore’s infrastructure sector to be less pronounced than that of the buildings sector.

“More than 90 per cent of projects are supported by the government through public spending, giving it counter-cyclical properties as it is shielded from fluctuations in business sentiment levels,” Fitch said.

In addition, the government’s plans to continually enhance the Republic’s transport system has generated a healthy project pipeline, of which a number of high-value contracts are expected to be awarded progressively over the course of 2020, after the Covid-19 situation eases.

These contracts include projects related to the construction of the Mass Rapid Transit Jurong Region and Cross Island Lines, as well as segments of the North-South Corridor, Fitch added.

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