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June 26, 2020

New Zealand reopens economy and earmarks ‘shovel-ready’ infrastructure projects

New Zealand has been successful in containing the virus outbreak, and the government has lifted all domestic lockdown restrictions in the country from 9 June. Earlier, the government had imposed strict measures from 26 March to 23 April in a bid to contain the spread of Covid-19. During this period, the country was in a complete lockdown except for essential work. During this phase, in the construction sector, the government allowed only essential construction work related to critical infrastructure and essential services.

As a result of the strict lockdown restrictions and social distancing measures, the country’s construction industry fell sharply in the first quarter of 2020, with the industry’s value-add at chained volume measures registering a contraction of 5.1% year-on-year, as compared to growth of 3.3% year on year in Q4 and 5.1% year-on-year in Q3 2019, according to Statistics New Zealand. The latest data issued by the government also shows that buildings work weakened in the first quarter of 2020, with the total value of buildings work put in place dropping by 4.2% year on year. The total value of non-residential buildings work put in place declined by 6.7% year-on-year in Q1 2020, while the value of residential buildings work put in place declined by 2.8% year-on-year. Moreover, with the stage-4 lockdown falling mostly in April, and some form of lockdown remaining until 9 June, the contraction in the second quarter is expected to be more severe.

In order to provide a boost to the construction industry, create jobs and economic recovery, the government has announced plans to fund large ‘shovel-ready’ infrastructure projects identified by a task force, the Infrastructure Industry Reference Group (IIRG). The IIRG has received submissions of 1,900 projects with an expenditure of NZD136bn ($91bn). These projects would be in addition to the existing Provincial Growth Fund infrastructure investments, as well as the New Zealand Upgrade Programme announced in late 2019. Moreover, prior to the outbreak, in early 2020, the government announced plans to invest NZD12bn ($8bn) on infrastructure projects. Of the total, NZD6.8bn ($4.6bn) will be spent on transport infrastructure, with NZD5.3bn investments on roads and NZD1.1bn ($736.1m) on rail infrastructure projects.

To boost Canterbury region’s economy, the government plans to fast track Christchurch’s stadium and a museum construction projects. Accordingly, the government announced plans to allocate NZD800m ($535.4m) from the provincial growth fund to finance the projects.

On 15 June, Prime Minister Jacinda Ardern announced 11 large ‘shovel-ready’ infrastructure projects under the first tranche of infrastructure development that will be fast-tracked. The projects outlined by the government under this include the development of the Kaikohe water storage facility, Phase 1 of Unitec  housing project, Te Pa Tahuna, Papakāinga network development, Britomart East Upgrade, Papakura to Pukekohe electrification, Wellington Metro Upgrade programme, Picton Ferry Dock and Terminal upgrade, Northern Pathway project, Papakura to Drury SH1 road upgrade and Te Ara Tūpuna project.

Reflecting the improvements expected in the second half of 2020, GlobalData expects a contraction of 2.7% in the construction industry for the year as a whole, which is down significantly from growth of 4.6% in 2019. The damage inflicted on the overall economy, in terms of rising unemployment, combined with major challenges facing property developers amid deterioration in investor confidence, means that the overall construction industry will struggle to return to positive growth levels in the year as a whole. According to Statistics New Zealand, the total number of construction jobs in the country declined by 1.6% in April 2020, going from 177,876 jobs in March 2020 to 175,000 that month. Moreover, in a sign of the deteriorating conditions due to the Covid-19 outbreak, Fletcher Building, one of the major construction contractors in the country, announced plans in May to cut 1,000 jobs.

GlobalData expects the construction industry to regain growth momentum in 2021, driven by recovery in public and private sector investments, consumer and business confidence and the government’s investments in the infrastructure construction projects.

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