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Chart 1: Workloads
-60 -40 -20 0 20 40 60 80
India New
Zealand Hong Kong Australia Singapore China Sri Lanka Malaysia Past 3 months Next 12 months Net balance, %
Net balance, %
Q1 2019: Asia Pacific Construction and Infrastructure Survey
Data from the RICS Construction and Infrastructure Survey indicates a more subdued environment across the Asia Pacific region to start 2019. Chart 1 shows a mixed picture of workloads, as respondents in India, New Zealand and Hong Kong highlighted a modest increase in headline workloads while those in Malaysia, Sri Lanka and China noted a pullback.
However, in net balance terms there appears to be evidence of a slowdown in activity.
The more cautious start to 2019 might be attributed to increased uncertainty in the global economy.
IMF Managing Director Christine Lagarde recently highlighted the fragile state of the global economy, and the IMF’s most recent World Economic Outlook highlighted a number of downside risks to global growth. Although some of these, such as trade and interest rates have subsided to a degree, they have not been completely eliminated.
Chinese stimulus eases
A “hard landing” in China is an example of one of the percieved risks to global economic activity. The Chinese government appeared to allay some of these concerns entering 2019, as it appeared that infastructure investment was being used to counteract slower growth in other segments of the economy.
This survey picked up evidence of this in Q4 as respondents in China noted a substaintial pickup in infrastructure workloads.
However, this appears to be somewhat transitory as in Q1 survey participants reported a slower pace of growth in Chinese infrastructure workloads (Chart 2).
It appears that infrastructure investment is being used to stabilize, rather than stimulate growth and is unlikely to offer the same support to the broader economy as in
• Growth in headline workloads slowed or contracted across Asia Pacific in Q1
• Activity on infrastructure projects remains supportive in many markets
• Profit margins deteriorate, constraining construction market activity
C onstruction activity cools across Asia Pacific to start 2019
Chart 2: Infrastructure Workloads
-40 -30 -20 -10 0 10 20 30 40 50 60
Sri Lanka Malaysia Hong Kong China New Zealand Australia India Singapore
Q1 Q4 Net balance, %
2
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Q1 2019: Asia Pacific Construction and Infrastructure Survey
© RICS Economics 2019 Q1 2019
0 10 20 30 40 50 60 70 80 90 100
Hong Kong New Zealand China Sri Lanka Singapore Australia India Malaysia
Deteriorate Same Improve -70
-60 -50 -40 -30 -20 -10 0 10
Australia Hong Kong India China New
Zealand Singapore Sri Lanka Malaysia Past 3 months Next 12 months Net balance, %
Net balance, %
Chart 5: Credit Conditions Chart 3: Profit Margins
previous cycles.
The Chinese situation is by no means unique. In Singapore, Australia and New Zealand infrastructure workloads remain robust in an otherwise subdued environment, according to contributors.
Near-term pipeline mixed, longer-term robust Construction demand was mixed in the near-term across various markets. India, Sri Lanka and Malaysia were the outliers, as contributors in the former reported robust growth in new workloads, while new business enquiries in the latter two markets were said to have declined. In other markets, the near-term pipeline of demand was said to have either only increased marginally from the previous quarter or was little changed.
Despite a mixed picture in the near-term, respondents across all Asia Pacific markets covered by the survey expect activity to increase over the next twelve months. In net balance terms, India is expected to see the strongest increase, though activity in Australia, New Zealand and China is also expected to increase at a substantial pace.
Margin pressure a drag
As shown in Chart 3, margins remained under pressure in Q1 and are expected to continue to deteriorate over the next year. Although markets that are expected to see a weaker expansion over the next year (Malaysia, Sri Lanka) are expected to see the sharpest deterioration in margins, even markets which are expected to see a firm increase in workloads such as China, New Zealand and to a lesser extent Hong Kong and Singapore see margin contraction.
Increased costs of materials is likely a contributing factor. Costs of materials are expected to increase across the region, with particularly sharp increases (in net balance terms) expected in New Zealand, Sri Lanka, India and Singapore. Perhaps unsurprisingly, a majority of respondents in these countries, as well as in China, Hong Kong and Malaysia, cited the costs of materials as holding back construction activity.
It does not appear that firms are able to fully pass on the higher costs of materials to customers. This is despite Chart 4 showing that tender prices are expected to rise over the next year across all markets excluding Singapore and Malaysia.
Margin compression appears to be weighing on construction activity. A majority of respondents in every market noted that financial constraints were holding back activity, in Malaysia and Sri Lanka an excess of 95% of respondents highlighted this as a drag. This is despite access to credit remaining fairly accommodative in most markets outside Malaysia, as shown in Chart 5.
Chart 4: Tender Prices, Next 12 months
-40 -30 -20 -10 0 10 20 30 40 50
India Sri Lanka Hong Kong China New
Zealand Australia Singapore Malaysia Building Civil Engineering Net balance, %
3
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Q1 2019: Asia Pacific Construction and Infrastructure Survey
© RICS Economics 2019 Q1 2019
Construction and Infrastructure Survey
RICS’ Asia-Pacific and Middle East Construction and Infrastructure Survey is a quarterly guide to the trends in the construction and infrastructure markets. The report is available from the RICS website www.rics.org/economics along with other surveys covering the housing market, residential lettings, commercial property, construction activity and the rural land market.
Methodology
Survey questionnaires were sent out on 25 March 2019 with responses received until 23 April 2019. Respondents were asked to compare conditions over the latest three months with the previous three months as well as their views as to the outlook. A total of 774 company responses were received globally. Responses in New Zealand were collected in conjunction with the Property Council of New Zealand.
Net balance = Proportion of respondents reporting a rise in a variable (e.g. occupier demand) minus those reporting a fall (if 30% reported a rise and 5% reported a fall, the net balance will be 25%). Net balance data can range from -100 to +100.
A positive net balance reading indicates an overall increase while a negative reading indicates an overall decline.
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This publication has been produced by RICS. For all economic enquiries, including participation in the monitor please contact:
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Disclaimer
This document is intended as a means for debate and
discussion and should not be relied on as legal or professional advice. Whilst every reasonable effort has been made to ensure the accuracy of the contents, no warranty is made with regard to that content. Data, information or any other material may not be accurate and there may be other more recent material elsewhere. RICS will have no responsibility for any errors or omissions. RICS recommends you seek professional, legal or technical advice where necessary. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the editorial content, or by any person acting or refraining to act as a result of the material included.
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