Ahead of the Covid-19 pandemic, governments across Asia-Pacific had been investing heavily in infrastructure. According to GlobalData, in the past five years, the value of global infrastructure construction grew by 3.2% on an annual average basis in real terms. This growth was driven by Asia, with infrastructure construction in North-East Asia growing at 5.4% a year on average and South and South East Asia growing at 6.8%.
However, the Covid-19 crisis has created unprecedented economic disruption in the region, with containment measures bringing many economies and key sectors to a standstill. Despite high-levels of government support to business and households, overall economic growth for the region will drop to just 0.5% in 2020, down from an average of over 7% in the past five years. Excluding China, the region’s economy will contract by 0.6% in 2020. GlobalData expects the construction industry in the region, excluding China, to grow by just 0.4% in 2020, reflecting the direct impact of the lockdowns on construction activity, as well the depressed outlook for investment in the commercial, industrial and residential markets. Excluding China, output growth in the region will contract by 2.2%, a more severe drop than in 2008 when output fell by 0.3%.
Reflecting the Covid-19 impact, governments and public authorities will likely be aiming to advance spending on infrastructure projects as soon as normality returns so as to reinvigorate the industry and the wider economy. This will be spread across all areas of transport infrastructure and energy and utilities. Investment in infrastructure is generally considered to have a high multiplier effect, with the overall increase in economic value being higher than the value of direct investment itself.
Given the increased focus on infrastructure investment as a potential path to generate growth momentum to offset the impact of the Covid-19 crisis on economic activity, GlobalData has assessed the potential for governments to succeed with such efforts. This assessment considers five factors:
- Pipeline Size: This is an assessment of the size of the project pipeline of all public and public-private funded infrastructure projects (including roads, railways, airports, ports, power plants, and water and sewage utilities) at all stages from announcement through to execution. A comparison of this pipeline value to a country’s GDP provides an indication of the extent to which an acceleration in investment could impact the economy.
- Pipeline Opportunities: It is necessary for the pipeline of projects to be sufficiently advanced to enable works to be ramped up, or for the final approvals and awards to be completed post-haste. In colloquial terms, there needs to be a pipeline of ‘shovel ready’ projects rather than high proportion of projects still in the early planning stages and facing a bottleneck in terms of advancement.
- Political Momentum: The potential to accelerate investment in infrastructure projects will be relatively good in countries where the incumbent administration has already laid out a long-term investment program, and is in a strong position to follow through on its policy agenda during this crisis period.
- Fiscal Position: With interest rates falling to record lows, borrowing costs will be at a minimum, making it a relatively cost-effective period for governments to push ahead with investments. However, the scope for governments to spend heavily on infrastructure will be dependent in part on their current financial standing. With most government prioritising direct support to businesses and households, their capability to invest in the infrastructure segment is likely to be constrained, especially in countries with high debts.
- Economic Growth: Although very few economies are expected to grow in 2020, the recovery periods will vary, and those which have a shorter time horizon to recover Covid-19 losses will provide a more conducive environment for the public sector to drive through an investment agenda.
Across the region, five major markets are assessed to have a ‘very good’ rating in terms of the prospects for accelerating investment in infrastructure projects: China, India, Philippines, Singapore and Vietnam. Only Pakistan is considered to have ‘weak’ prospects, when taking into account all five factors.
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