Construction Sector Spending To Slow Down In Q4 2018

Government spending on infrastructure projects is expected to decline further in Q4 2018 as Putrajaya terminated and deferred massive projects implemented by previous administration in a bid to cope with the country’s high debt of over RM1 trillion, reported the Borneo Post.

“We believe that government policies and restrictive elements on government finances, are pointing towards a further slowdown for infrastructure expenses in the fourth quarter of 2018,” said MIDF Research.

“We are expecting some cut back in projects and infrastructure investments, owing to cancellations or postponements. Thus, development spending could be the first component impacted as the government realigns its priorities in the soon-to-be announced Budget 2019 in early November.”

For instance, the RM40 billion MRT3 project was terminated, likewise for the Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP), which have a combined value of RM9.41 billion.

The Kuala Lumpur-Singapore Higher Speed Rail (HSR), which is estimated to cost RM110 billion, was also postponed for two years.

Construction of the Light Rail Transit 3 (LRT3) is expected to resume by November, but the project’s cost was reduced from RM31.65 billion to RM16.63 billion by changing the plans and scaling it down.

On the other hand, the status of the RM81 billion East Coast Railway Link (ECRL) is still unknown.

Due to the abovementioned cancellations and deferments along with the limbo status of the ECRL, the research arm of MIDF Amanah Investment Bank expects that uncertainties in the construction industry would persist.

“While the KL Construction Index could see further improvement moving forward, it is apparent that the change in policy is highly sensitive to the sector and given the current uncertainties, we believe the lack of clarity will continue to put immediate term hurdles to our construction stocks’ price performance.”

Furthermore, MIDF Research expects loan disbursements to the construction industry to gradually decline to around RM4.7 billion to RM5.7 billion in the coming months.
 
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