The tourism industry is the backbone of economies across South-East Asia. Travel restrictions imposed by many governments have huge ramifications for all businesses in the industry, leading to an expected sharp decline in activity in the leisure and hospitality buildings construction.
The South-East Asian economy faces a severe economic downturn as the coronavirus epidemic spreads around the region. Data from the Center for Systems Science and Engineering (CSSE) at John Hopkins University show that more than 5,700 cases have been recorded in the South-East Asian region and 153 people had died as of 27 March. With the imposition of stricter measures, including lockdowns, travel restrictions and banned religious and social gatherings across many economies, the supply shock is expected to dampen economic activity. Travel restrictions are causing extremely low demand, which is manifested in low hotel occupancy, leading to massive job losses and low investor and consumer confidence. According to the World Travel & Tourism Council (WTTC), more than 48 million jobs are at risk in the Asia-Pacific travel and tourism sector, owing to the widespread effect of the virus pandemic.
The direct impact on construction has been the halting of work, with labour unable to get to sites or because of disruption in the delivery of key materials and equipment. Reflecting these issues, the direct impact of the coronavirus on construction has been extensive in the worst-hit South-East Asian countries, namely Malaysia, Thailand, Indonesia and the Philippines.
In response to the rising number of cases, the Malaysian Government has announced a two-week lockdown in the country, which includes closure of all government and private businesses, excluding essential services. The government has announced a stimulus package worth MYR20bn ($4.8bn) to support businesses affected by the coronavirus outbreak, with particular emphasis on the tourism sector. Despite the government’s various measures to support the economy, investment in construction industry over the short-term is expected to be affected by decline in trade, travel, and consumer and business confidence due to the cancellation or postponements of sports events.
Thailand is likely to be heavily affected by the slump in tourism, given the importance of this sector to the overall economy. According to the Tourism Authority of Thailand (TAT), the total tourist arrivals in the country dropped by 44.3% in February. Moreover, the country is expected to receive only 30 million tourists in 2020, compared to 39.8 million tourists in 2019. To combat the effects of the coronavirus outbreak on the economy, the Thai Government has approved a stimulus package worth THB400bn ($12.7bn), and on 24 March it announced a one-month state of emergency, which gives the government powers to censor the media and implement curfews, as well as deploy military forces.
Indonesia, which has so far 893 confirmed cases, has already announced a fiscal stimulus package of IDR10.3tn ($725m) to support tourism, aviation and property markets in a bid to offset the economic effect of the coronavirus scare. During the period of January–November 2019, an estimated two million Chinese tourists visited Indonesia, which accounted for 13% of the overall tourist arrivals. The government imposed a travel ban to and from China with an effort to prevent the spread of the virus, and due to these restrictions, the country is expected to lose IDR58.5tn ($4bn), according to the Indonesian Tourism Minister. According to Statistics Indonesia, the total foreign tourist arrivals in the country declined by 7.6% in January 2020, compared to December 2019. The government has revised its target to attract 17 million tourists in 2020, as compared to previous target of 18 million tourists.
In Singapore, there have been more than 680 confirmed cases to date. The government has taken steps to counter the economic effect from the coronavirus outbreak. Despite the government’s preparedness at handling the virus outbreak and its prompt actions through fiscal stimulus measures, tourism and construction sectors have been affected by shortages of labour due to restriction on the movement of people. According to Singapore Tourism Board (STB), tourist arrivals in the country is estimated to decrease by 25%-30% in 2020 due to the virus outbreak, which will weigh on construction spending.
The South-East Asia region is among the most vulnerable to virus outbreak from both the direct and indirect impacts. The region has a high dependence on trade with China and is heavily exposed to fluctuations in global trade. Thus, tourism-dependent countries across South-East Asia are likely to be affected more in the near term. Governments across the region are trying to combat the economic strain brought as a result of the coronavirus outbreak by announcing fiscal stimulus packages, particularly supporting the tourism and airlines industry, and adopting accommodative monetary policy with interest rate cuts.
The damage inflicted on the South-East Asian economies, in terms of rising unemployment, travel restrictions, and deterioration in investor confidence, coupled with travellers adopting a safety-first approach, means that all segments of the travel and tourism industry will struggle to return to healthy growth levels in 2020, leading to decrease in demand for the construction industry.
Deterioration in investor and consumer confidence will lead to weaker capital expenditures in the leisure and hospitality sector in South-East Asia in the near term. Reflecting the recent disruption and the weaker outlook for economic growth and capital investment, GlobalData expects the region construction industry’s output to record a growth of 3.4% in real terms in 2020, compared to 5.9% in 2019. The forecast is based on a central scenario that the outbreak will be contained by the end of the second quarter; in the event that the outbreak spreads more extensively, further downward revisions are likely.