Construction industry to see more growth despite deficit cut

The construction industry is poised for a continued growth given the orders in hand which is ample to last players for five years.

Mega projects like the Klang Valley Mass Rapid Transit 2 and other Economic Transformation Programme (ETP) projects are expected to generate RM25 billion worth of business.

"Although the government is pressured to roll out its planned developments in a move to reduce its current account deficit, this is not expected to impact the industry.

"It is a good time to do so (to cut fiscal deficit) as many contractors have their plates full executing existing projects," Hong Leong Investment Bank Research Analyst Jarod Soon told Bernama.

He said upward cost pressures would likely occur this year.

"Although building material prices have remained largely unchanged, inflationary pressures will come from tight labour supply and indirect sources arising from the reduction in government subsidies and the weaker ringgit," he said.

The government aimed to trim the deficit from 4.5 per cent of Gross Domestic Product (GDP) in 2012 to 4.0% in 2013 and 3.5% in 2014 before returning to a surplus by around 2020.

Meanwhile, MIDF Amanah Investment Bank Bhd Research Analyst Mohd Hafiz Haasan shared a similar view on the sector outlook although the government allocated a smaller development expenditure of RM46.5 billion this year from RM49.7 billion last year.

Mohd Hafiz said for the past three years, the construction sector had largely been spurred by government spending to build the country's infrastructure such as My Rapid Transit, highways, properties, and five economic corridors including Sarawak Corridor of Renewable Energy in line with the ETP.

"We believe the government-linked, private and foreign jobs would help sustain the positive momentum in the construction sector (in terms of jobs flow) and our economic growth going forward," he said.

MIDF in a separate statement said that it expected more positive news flow on tenders and awards which will be announced in the coming months.

The projects included the RM1.2 billion Langat 2, RM5 billion Warisan Merdeka Tower, RM8 billion Suke and Dash highways, private and foreign contracts (such as RM3 billion Kuantan Port expansion, RM2.2 billion Kinrara-Damansara Expressway, Duta-Ulu Kelang Expressway (Phase 2), indoor and outdoor theme park in Rawang, RM1 billion road and bridge works in the Gulf states and RM2.6 billion Cavite-Laguna Expressway in the Philippines.

Moving forward, the government has forecast the construction sector to contribute nine% to GDP in 2014 compared with 10.6 per cent in 2013, the highest among the economic sub-sectors.

"The construction GDP growth is expected to stay robust largely due to the progress of many construction works awarded in 2012-2013," he added.