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Moody’s downgrades global construction prospects for 2020-21

 

On the back of coronavirus disruptions, investor relations company Moodys has issued a pessimistic outlook on the global construction industry for the next 12 months. 

Moody’s Investors Service has issued a report that forecasts there will be a decline in the aggregate average revenue for rated construction companies (excluding mergers and acquisitions), thanks to COVID-19 disruptions, deteriorating economic output and falling commodity prices.

In its report – Construction – Global: Outlook turns negative as coronavirus, slowing GDP, low oil prices hit revenue – the investor relations company announced it had downgraded the global construction segment to negative since it began assigning a regular outlook in 2017.

“Specifically, the impact from coronavirus will lead to a substantial decline in residential construction activity, private and non-residential construction activity in the US, particularly for office buildings, hotels, restaurants and retail properties,” the company outlined in a statement. “Energy and mining sector projects will also be delayed, since they are grappling with lower oil and commodity prices.”

According to Moody’s, the report is not quantitative. The company has taken a qualitative approach after speaking with construction companies and building material suppliers, as well as companies that have new building construction projects in the pipeline.

In the report, Moody’s forecast that the US economy in 2020 would contract by two per cent on the back of falls in the US homebuilding and construction materials sectors. Infrastructure spending, though, supported by American federal, state and local government spending, would remain stable.

Revenue is also anticipated to drop in Europe, as social distancing and lockdowns also contribute to project delays, cancellations and cost overruns. Real GDP in the Euro area is likely to contract by 2.2 per cent, with even steeper contractions in the largest construction markets such as Germany, Italy and the UK.

Australian forecast 

Moody’s was a little more optimistic about Australia’s construction industry prospects. It wrote that while overall construction activity would decline this year and private construction in particular would soften, the infrastructure project pipeline was solid. 

 Government still considers construction to be an essential service and has not mandated work stoppages. While we expect private construction activity to soften in the next 12 months, we expect the pipeline of infrastructure projects to proceed. 

 But we also expect continued delays in large infrastructure projects given supply chain disruptions and constraints on mobilising personnel at construction sites, given social distancing laws and requirements for self- quarantine. 

 Moody’s stated that a recovery in global construction activity would be dependent on how quickly China can return to growth.  

 We expect flat or low single-digit percentage revenue growth for the rated Chinese companies in 2020,” it wrote. The coronavirus outbreak caused construction suspensions and delays beginning in late January. But as infections plateaued in early March, construction activity has resumed on most of the key infrastructure projects on which activity was suspended or delayed. 

 We expect Chinese construction companies to recover much of the domestic revenue they lost at the start of this year. Given the resumption of construction activity, the government [has] increased spending on infrastructure and the strong order backlogs at a number of companies. The outlook on the China property (ie homebuilding) sector is also negative because we expect nationwide sales will decline this year and inventory will remain high. This will translate into lower construction activity. 

 Moody’s stated it would consider changing its appraisal of the global construction outlook back to “stable” if the rated companies’ aggregate average revenue growth increases and turns positive in the next 12 to 18 months. 

 More reading 

LafargeHolcim optimistic about aggregate industry comeback from COVID-19 

Boral aims to preserve cash supply in COVID-19 update 

Construction industry index sinks to lowest ever results 

NSW, QLD to ramp up construction works to keep economy afloat 

Victorian quarrying industry ‘crucial’ to economic survival 

 

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