Infrastructural investments to drive Indonesian construction output in 2021, says GlobalData

The Indonesian construction output declined by 2% in real terms in 2020 due to the large-scale social restrictions (PSBB) imposed by the government to control the COVID-19 infection. However, driven by investments in infrastructure, the industry is expected to stabilize and recover in 2021 with an expected registered growth rate of 7.1%, assuming operations return to a normal level, says GlobalData, a leading data and analytics company.

The Indonesian construction industry had recorded an annual average growth of 6.8% from 2007-2019. However, the industry was disrupted in 2020 as the government’s restrictions on businesses and travel disrupted operations and weakened company earnings and household incomes, thereby affecting private investment. On the other hand, public investments have been curtailed due to increasing focus on social expenditure, delays in project implementation and the re-allocation of part of the government’s budget towards its fight against COVID-19.

Dhananjay Sharma, Analyst at GlobalData, comments: “The recovery in 2021 will be driven by investments in infrastructure, with the government having announced a planned expenditure of IDR414 trillion (US$25.4bn) in the 2021 budget. The government hopes that this will have a multiplier effect on the economy and help alleviate the unemployment scenario. Accordingly, the government has allocated US$2.6bn for the state-owned enterprises in 2021 to help boost their role in supporting the country’s economic recovery by creating more jobs and conducting business activities.”

​Following the rebound in 2021, the Indonesian construction industry is expected to stabilize and grow at an annual average rate of 5.2% during 2022-2025, supported by investments on the development of the country’s overall infrastructure. This includes planned spending under the National Medium-Term Development Plan (2020-2024 RPJMN), wherein the government plans to invest IDR6 quadrillion (US$412bn) on the development of transport, industrial, energy and housing infrastructure projects by 2024.

Sharma concludes: “Residential construction accounted for 25% of the construction industry’s total output in 2020. The government’s aim to increase the housing sector’s contribution from 2.9% in 2020 to 4% of GDP by 2024 is likely to foster growth across the entire construction value chain.”

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