Singapore's construction sector is poised to take a hard hit from the coronavirus pandemic 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.
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 yesterday.
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 the virus' transmission, following the spike in the number of confirmed Covid-19 cases in various dormitories housing construction workers.
A handful of dorms have since been gazetted as isolation areas since early this month, which restricts residents from leaving the dorms. 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 dorms for a period of 14 days till May 4.
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 Singapore's circuit breaker measures have been extended till June 1, and believes social distancing measures will remain in place for workers residing in dormitories and at work sites 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 work sites.
The report stated: "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."
Given falling foreign direct investments as a result of low business sentiment worldwide, Fitch expects Singapore's building 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 building sector in late 2019 will translate to lower construction activity in 2020," it said. "We forecast the building construction sector to shrink by 11.5 per cent year on year, a drop of 6.3 percentage points from our previous forecast of minus 5.2 per cent".
Noting the circuit breaker measures have adversely impacted the finances of many small and medium-sized enterprises, Fitch anticipates the level of capital expenditure by SMEs to "fall dramatically" this year, as companies prioritise solvency over expansion.
Separately, Fitch expects contraction in the infrastructure sector to be less pronounced than that of the building 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."
In addition, a number of high-value government contracts are expected to be awarded progressively over the course of the year as part of the enhancement of the public transport system after the Covid-19 situation eases.
These contracts include projects related to the construction of the MRT Jurong Region and Cross Island Lines, as well as segments of the North-South Corridor, Fitch added.
THE BUSINESS TIMES
