With the UK Prime Minister, Boris Johnson, revealing that lockdown measures are unlikely to be lifted when the government reviews the situation on 7 May, several sectors of the economy are facing the prospects of a severe downturn, with the tourism industry being among the worst-affected. This will have a major knock-on effect on construction activity in the commercial space.
Revealing the extent of the global downturn in tourism, the World Travel and Tourism Council (WTTC) recently revealed that 100 million jobs could potentially be lost around the world as a result of the coronavirus outbreak. The WTTC’s analysis also revealed that 13 million jobs could be lost in Europe with the travel and tourism sector facing a potential $708.5bn loss. In the UK, Visit Britain revealed that the tourist sector is likely to lose an estimated £15bn ($18.7bn), with 22 million fewer tourists expected in the UK this year as a result of the virus outbreak. On 24 April, the G20 held the annual Tourism Ministers’ Meeting on Covid-19, with the UK Tourism Minister announcing financial support for businesses in the sector, including a cash grants scheme and deferral of VAT payments for firms in the sector. The sector is a key part of the UK economy and accounts for 10% of total UK GDP.
The downturn facing the travel and tourism sector is likely to adversely affect the commercial construction sector in the UK. The commercial construction sector was the second largest market in the UK in 2020 and was expected to drive growth in the construction sector prior to the virus outbreak. The downturn in the sector is likely to lead to projects being halted due to a lack of financing, particularly if the virus is not contained during the second quarter of the year. The leisure and hospitality buildings sector accounts for 20% of total commercial construction, and the lockdown measures imposed by the government are expected to significantly dampen growth in the sector; GlobalData predicts that leisure and hospitality buildings construction output will fall by 14.2% in 2020.
As the economic outlook worsens and with unemployment dramatically rising, the UK economy is now set to contract by 5.4% in 2020 according to market consensus, a sharp downgrade from the 1.3% growth predicted in February. The worsening economic conditions and the virus outbreak are also set to negatively impact output in the UK’s overall construction industry. GlobalData has downgraded its growth forecast for the UK construction industry to -5.8% in 2020, with a high likelihood of furthers cuts if activity in the short term is more severely disrupted than currently anticipated. Commercial construction is set to be the most severely impacted sector by the virus outbreak, with the sector set to contract by 11.2% in 2020. Assuming that the outbreak of the virus is contained within the second quarter, there is the potential for a recovery in the second half of the year. However, downside risks remain, including the virus re-emerging in the second half of the year.