Construction industry growth in Northeast Asia will decelerate to 1.1% courtesy COVID-19, finds GlobalData

The construction output for Northeast Asia, which is the largest region in terms of the total value of global construction output, has been revised down to 1.1% as compared to the pre-COVID forecast of 4.2% by GlobalData, a leading data and analytics company.

Although being the epicenter of the COVID-19 pandemic, China is still expected to post a minimal level of growth in 2020, as it has shown signs of recovery in recent months after the sharp downturn in the first few months of the year, supported by investment in infrastructure.

Investment activities started picking up in March, before accelerating in April, with the latest data showing further progress in investments in both fixed assets and real estate segments. Investments in real estate development grew by 7% year-on-year in April, which followed marginal growth of 1.1% in March and a 16.3% contraction during the first two months. 

The quarterly construction value add data from the region presents a mixed picture with real growth rate declining by an unprecedented 17.5% in China and by 9% in Hong Kong; however, the South Korean industry grew by 3.2%, while in Mongolia the growth rate was 11.9%.

Dhananjay Sharma, Construction Analyst at GlobalData, comments: “Trade disruption is likely to present a major challenge to the export oriented economies of Taiwan, South Korea, Hong Kong and to a lesser extent on Japan and China as companies cut back on expansion due to cash flow problems, thereby affecting industrial construction sector badly.”

Construction activities in Japan have been affected as major construction contractors temporarily halted work in the country due to the state of emergency measures announced by the government. In South Korea, where the government’s extensive tracing and testing method has limited the spread of the virus, though the industry performed better than expected, the total value of construction orders received declined by 11.8% during the first four months.

Hong Kong’s construction industry was already in dire straits prior to the COVID-19 outbreak, with output contracting by 9.3% in 2019. The situation worsened following the COVID-19 outbreak and the renewed tensions following political interference from China. The US government’s trade war with China and the removal of Hong Kong’s special status are expected to decrease investment in industrial construction, while the commercial segment would be affected due to decrease in tourist inflows.

Mr Sharma concludes: “Led by the recovery in China and the better than expected growth in South Korea, the industry is expected to grow by 5.7% in 2021 and an annual average growth rate of 4.2% over 2021-2024. This will be due a slowdown in the growth in China as the industry is becoming more mature and the government focuses more on new age infrastructure including 5G networks and data centers.”

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