Economic Outlook: Asia Pacific
By Scott Hazelton14 June 2013
Signs of stabilisation in the Chinese and Indian economies indicate that outside of Japan, Asia’s overall performance is set to improve.
Meanwhile in the hitherto sluggish Japanese economy, the country returned to growth in the fourth quarter of 2012 with real GDP up +0.2%. Industrial production, unemployment and retail sales all suggest it is emerging from recession thanks in part to Prime Minister Shinzo Abe’s “three arrows” policy of monetary & fiscal stimulus and structural reforms. The first two are underway, confidence has improved, and Japan’s economic growth is expected to strengthen to around +2.0% by the end of the year, and retain that momentum in 2014 and 2015.
Growth in construction spending in the Asia-Pacific region slowed to less than +6% in 2012 as spending in China dipped to +8.9%, the first time in more than a decade that the country did not see a double-digit increase. In response, the government redoubled its stimulus efforts, including increased credit availability and lower interest rates, in addition to more spending on infrastructure and low-cost housing.
Taken together, IHS Global Insight expects construction spending growth in China to increase +11.1% in 2013 followed by +8.9% in 2014 with infrastructure construction as the primary contributor.
In Japan, construction activity driven by post-earthquake repairs will accelerate as the cleanup phase ends and rebuilding begins, along with stimulus measures. Expect spending to increase in the +4% range in 2013 and 2014 with the strongest surge coming in the residential sector.
Indian construction growth slowed to +4% in 2012 as the Eurozone crisis and slowing in other Asian markets dampened export demand. Spending will accelerate in 2013 as the Indian cabinet has approved the long-awaited National Cabinet Committee on Investment to enable fast-tracking of approvals for big projects, particularly infrastructure schemes.
Construction spending in India is expected to increase +6.3% in 2013 and accelerate to +9.2% in 2014 with the infrastructure segment seeing the greatest strength.
In 2013, China will see the fastest growth in the region, followed by New Zealand, where earthquake reconstruction will again fuel growth this year. Indonesia is expected to have the third-highest growth in the Asia-Pacific region in 2013, with strength in infrastructure and non-residential structures.
Accounting for approximately 44% of global construction spending in 2013, the Asia-Pacific region will lead global construction growth with total spending projected to enjoy a +7.5% increase. Construction growth will be balanced over the next five years, with residential construction expected to increase at a +6.4% year-on-year, while non-residential structures and infrastructure construction are expected to enjoy +6.3% and a +6.1% growth respectively.
Infrastructure will be strongest in the near term, spurred by stimulus spending, particularly in China, but will be surpassed by building construction as the global economy gains strength.
Indonesia has some of the brightest prospects in the region, and infrastructure is also the cornerstone. The proposed 2013 budget plan would increase spending from US$ 18 billion to US$ 20 billion and allow for improvements to 4,400 km of roads and the construction of 15 airports and 380 km of railways.
But transportation is not alone in seeing major investment. Indonesia is building a US$ 9 billion greenfield refinery with a capacity of 300,000 barrels of oil per day to meet the fuel demand of the eastern part of the country.
Residential construction activity offers differing opportunities for different countries across the region. China benefits from a renewed commitment to social housing while Japan continues reconstruction, for example. Meanwhile, Australia and South Korea are seeing cyclical recoveries from a weak 2011 and Vietnam and Indonesia need to accommodate growing populations, and cater for populations with improving incomes who want better housing.
Non-residential construction is performing well across the region, with exporters set to benefit from economic improvements in the US and Europe (eventually). While China has overcapacity in some areas, it plans to invest in new industries, such as pharmaceuticals, and move more manufacturing to the hinterland. Maturing economies will create greater domestic consumption and demand for services, with the consequent need for commercial space.
Asian construction may not return to its heyday, but it remains strong with opportunities across the board, but especially in infrastructure.