Early recovery for Asia Pacific
By Chris Sleight10 November 2010
Asia has come through the global recession in better shape than any other part of the world. In fact most construction markets on the continent's eastern seaboard did not even see a downturn in construction activity, only a slowdown in the rate of growth.
This was partly because years of economic expansion had given the region something of a cushion, so that when trouble did come in the form of the banking crisis and subsequent recession, governments were able to invest in stimulus plans to get their economies through.
The other factor was that economies in the region were less exposed to the banking crisis in the first place. Although there was a tightening of credit in Asia, the region did not see banking collapses on the scale of those in the US and Europe, and neither did it have to rack up huge government debts bailing out financial institutions.
This resilience is bourn out by data from the Asian Development Bank (ADB), which shows that even last year, GDP growth stayed at +5.2% across developing Asia. The bank sees economic activity bouncing back this year, with GDP growth rising to +7.5% and more or less holding steady into 2011, with a further +7.3% expansion.
As far as the Asia Pacific region is concerned, all countries are expected to see growth this year, and China, as ever, will lead the way. The country's economy is expected to grow by an impressive +9.6% this year, and much of this is due of course to the CNY 4 trillion (US$ 585 billion) stimulus plan announced in late 2008.
This investment is having a profound effect on the construction industry, with some CNY 3.08 trillion (US$ 450 billion) being spent on some sort of construction. This equates to about an additional 30% of the normal value of the construction market in 2009 and 2010 - the duration of the plan.
In the past infrastructure development in China has focussed on road building, but one of the things the stimulus plan has done is to put more emphasis on high-speed rail. The government plans to add 35 new lines by 2012, bringing the country's network to 15000 km - ten times what it was in 2008.
This spending package kept China's construction growth well above any other country in the region last year. According to HIS Global Insight, Chinese construction output increase +11.5% last year, when no other major market in the region managed growth of even +5%.
This year should see growth improve, with the larger emerging markets leading the way. Despite its political problems, construction in Thailand is expected to increase just under +5% this year, and there will be similar growth in Singapore and Vietnam. Indonesia also looks a buoyant market.
But that is not to say that construction output across the region is back to normal yet, or that the recovery will take in all countries. There will be a much slower Bounce back in the more advanced countries - most notably Japan, which has now been surpassed by China as the world's second largest construction market (after the US).
With GDP growth in Japan forecast at just +1.9% this year according to the International Monetary Fund (IMF) and global demand for the country's exports still weak, construction activity is expected to fall again in 2010. IHS Global Insight expects real construction output to fall another -3% this year, on top of last year's -8.7% fall.
Among other things, this has had a profound impact on the country's construction equipment market. According to Off-Highway Research, sales are still falling in Japan this year while the rest of the world is seeing a recovery. Sales this year are expected to hit just 23700 machines - a far cry from the 70000+ machines sold in the boom years of 2006 and 2007.
On top of this, the industry is still coping with a series of scandals that have shaken its credibility. Last year saw Ichiro Ozawa, a leading figure in the Democratic Party of Japan (DPJ), implicated in a funding scandal that centred around illegal slush funds set up by contractor Nishimatsu.
The scandal dragged on for more than a year, and only went quiet last month when prosecutors decided there was not enough evidence against Mr Ozawa to press charges. Be that as it may, the drawn-out affair has tarnished the industry's reputation, bringing to light stories and implications of corruption in high places and inappropriately close relations between contractors and public officials.
Although they do not have the problems Japan does, many of the more mature markets in Asia are looking at a similarly slow recovery. Countries like Malaysia, South Korea and Taiwan are only expected to see +1.5% to +3.5% growth in their construction markets this year.
Perhaps the only exception to this rule is Singapore, where last year's SG$ 20.5 billion (US$ 13.6 billion) stimulus package included SG$ 4.4 billion (US$ 2.9 billion) for infrastructure work. In the context of Singapore's relatively small city-state economy this is a huge amount of money. Estimates of the size of the construction market vary, but the highest is less than US$ 20 billion per year, so the stimulus measures represent a +15% boost.
Notwithstanding the problem areas, construction markets in Asia are returning to health much faster than other parts of the world. Having said that, they are not returning to the break-neck growth levels of the pre-bust years. Countries like china and Vietnam continue to lead in terms of growth, but they are not about to get back to the +20% and +10% or more rates of increase seen five years ago.
This lower growth dynamic is perhaps more of an issue in more mature markets, where the recovery will be more drawn-out and the 'normal' levels of activity that return in a few years time could be pretty lacklustre compared to previously.