The past year saw a slowdown in growth for the construction sector as a result of Budget 2019’s focus on scaling down infrastructure projects but analysts now believe that the government may increase its allocation to development expenditure for Budget 2020 and reinvigorate growth for the sector.
KUCHING: The past year saw a slowdown in growth for the construction sector as a result of Budget 2019’s focus on scaling down infrastructure projects but analysts now believe that the government may increase its allocation to development expenditure for Budget 2020 and reinvigorate growth for the sector.
According to RHB Investment Bank Bhd (RHB Research), Budget 2019 had a development expenditure budget of RM54.7billion (flat compared to Budget 2018), with a focus on scaling down infrastructure projects.
“This resulted in uncertainties on some projects, causing delays and ultimately a slowdown in growth for the construction sector,” the research firm said.
“The sector expanded 0.5 per cent year on year (y-o-y) in the first half of 2019 (1H19), trailing below the Government’s 4.9 per cent projection for 2019.
“It is also the lowest rate of growth since 1H10, and is below the past three-year (2016 to 2018) average growth rate of 6.1 per cent. This could warrant the government increasing its allocation to development expenditure and reinvigorate growth for the sector, in our view.”
As such, RHB Research believed that Budget 2020 could be more expansionary, in contrast to the austerity-driven Budget 2019.
“RHB economists believe that the Government could embark on a small scale pump-priming to spur the domestic economy, possibly through speeding up existing infrastructure projects.
“This is in view of the possibility of an expansionary fiscal stance – with its debt-to-gross domestic product (GDP) ratio not consolidating as quickly as previously forecasted amidst a global economic slowdown, higher-than-expected government revenue collection and cost savings from the scale-down of existing infrastructure projects.”
The research firm noted that the scaling down of the Light Rail Transit 3 (LRT3), Mass Rapid Transit 2 (MRT2), East Coast Rail Link (ECRL), Klang Valley Double Tracking Phase 2 (KVDT2) and the Pan Borneo Sarawak Highway have yielded the Government a potential RM43.7billion.
“It remains uncertain but these savings could be reallocated to the sector, through the commencement of shelved projects such as the Kuala Lumpur-Singapore High Speed Rail (HSR) and Mass Rapid Transit 3 (MRT3), or the introduction of new infrastructure projects.”
In RHB Research’s view, positive surprises could be in the form of federal budget allocations to specific components of the RM46 billion PTMP, where Phase 1 – comprising the Bayan Lepas LRT and PIL 1 highway – are in the final stages of receiving approval.
“Meanwhile, allocations to shelved projects such as the HSR, MRT3 and Johor Bahru-Singapore Rapid Transit System could shed some light on their status. Allocations to construct new schools, hospitals, affordable housing projects and urban/inter-state roads would also be viewed positively.”