MENA construction sector faces severe slump in 2020
GlobalData report says that pace of regional recovery will be slow, with headwinds in 2021
The construction output growth forecast for the Middle East and North Africa (MENA) region for 2020 has been cut to -4.5% from the previous estimate of -2.4%, a report from GlobalData, a leading data and analytics company, has said.
In 2021, the sector will face headwinds in 2021, with a slow recovery forecasted, the report added. It pointed out that the pace of recovery across the countries in the region will be uneven.
“The construction sector will face headwinds in 2021 with a slow recovery, but the pace of recovery will be uneven across countries in the region. Spending is likely to gather some further momentum in the near-term as more parts of the region’s economy reopen. However, a further weakening in the labor market and a potential drop in expat numbers – mainly in the GCC – are likely to weigh on consumer spending in the period ahead, affecting future construction plans,” says Yasmine Ghozzi, Economist at GlobalData.
“Fiscal deficits and public debt levels will be substantially higher in 2021. Public investment is likely to be moderate, which will translate into fewer prospects for private sector businesses to grow – especially within sectors such as infrastructure. Meanwhile, increase in taxes, selected subsidy cuts and the introduction of various public sector service charges will affect households’ purchasing power, having a knock-on effect on future commercial investments,” she adds.
The report broke down the outlook for the construction sector in various countries in the region:
Saudi Arabia
GlobalData has cut its forecast for construction output growth for Saudi Arabia to -2.8% from an earlier estimate of -1.8% and expects a recovery for the sector of 3.3% in 2021. This revision reflects the extended lockdown measures that were cautiously eased in July, along with an estimated one million expatriate workers who departed in the wake of the economic shutdown, as well as the uncertainty regarding the degree to which the government will be able to offset its oil revenue losses and stabilize its debt burden in the short term.
UAE
GlobalData has further cut the forecast for construction output growth in the UAE to -4.8% from an earlier forecast of -2.1% in Q2 2020. The UAE is facing a deeper-than-expected economic contraction this year, with the country’s central bank projecting GDP to shrink 5.2% down from its previous 3.6% forecast.
Qatar and Kuwait
GlobalData has cut further the growth rates for Qatar and Kuwait in 2020, to -4.5% and -9.5%, respectively, from an earlier estimate of -3.4%, -7.8%. It still holds its forecast for Oman at -8.1%.
Ghozzi adds: “The COVID-19 pandemic and plunging oil prices have taken a toll on Kuwait’s economy. A deteriorating liquidity crunch and a delay in legal authorization to issue a new debt law has resulted in the country’s first ever credit rating downgrade from Moody’s.”
Egypt
Egypt’s construction sector is set to continue performing well in spite of the poor performance of the overall non-oil sector, which has been affected by a semi-lockdown since mid-March. The building and construction sectors were the most resilient in the face of the semi lockdown imposed during the height of the pandemic.
GlobalData expects construction to grow at 7.7% in 2020, slowing from 9.5% in 2019 – given a short-term slow down due to the pandemic – and 8.9% in 2021. The industry is also expected to continue maintaining a positive trend throughout the forecast period.
Israel
Furthermore, GlobalData expects Israel’s construction industry to contract by 8.4% in 2020, reflecting the strict lockdown measures that have been imposed.
Ghozzi comments: “Despite Israel’s poor management of a second wave of COVID-19, the economy should be resilient as it has been strongly growing over the past years, has sound external finances, and its export mix is relatively resilient. These factors are anticipated to contribute to a fast-economic recovery that will positively affect the country’s construction industry recovery.”
Arab Maghreb
In the Arab Maghreb, GlobalData has further cut forecasts for construction growth in 2020 in Tunisia, Morocco and Algeria to -12.5%, -5.5 and -3.4%, respectively, from an earlier estimate of -3%, -2.1%, and -2.5%.
Ghozzi adds: “The closure of Tunisia’s borders for 14 weeks and the global aversion to air travel, which still shows little sign of easing, will wreak serious damage on the tourism sector – with earnings likely to be down by as much as 80% in 2020.
With regards to the country’s industrial sector, manufacturing, which constitutes 16% of GDP, will contract sharply in 2020 because of supply chain blockages and a steep drop in exports amid dwindling demand in the EU. Manufacturing and wider industrial growth will begin to recover from 2021 as domestic and international conditions start to pick up, although the environment will remain weak.”
