Construction Cools Unexpectedly On Higher Costs

Source : The Straits Times, Apr 11, 2008

GROWTH in the booming construction industry slowed unexpectedly in the first quarter, after racing along at a frenetic pace for much of last year.

The sector, tipped as one of the economy’s key growth drivers this year, grew by just 14.6 per cent in the first two months, down from more than 20 per cent for most of last year.

Economists were surprised by what they said amounted to a contraction in the industry, but they remained confident that growth was still healthy and in line with their forecasts for the year, which ranged from 10 per cent to 25 per cent.

Most suggested that profits in the construction sector could have been hit by higher raw material and labour costs. Construction costs have risen 40 per cent in the past two years and are expected to jump by another 15 per cent to 20 per cent this year.

United Overseas Bank economist Ho Woei Chen also said that after several successive quarters of strong growth, a slowdown in one quarter ‘is to be expected’.

She and other experts, however, are still positive over the sector because of major projects in the pipeline, such as the Sports Hub in Kallang, as well as the integrated resorts.

CIMB-GK economist Song Seng Wun expects the first-quarter figure released by the Government yesterday to be revised up when fuller data comes out next month.

He noted that the estimates covered only January and February, which included a break for the Chinese New Year holiday.

With last month included, the growth figure should go up, he said, adding that better performances should also come in for the later quarters this year.

‘The intention is to get everyone up and running as quickly as possible in an environment where cost continues to be an issue, so we should see accelerated activity in the sector as developers try to finish projects,’ said Mr Song.

Construction firms also expressed surprise at the figures.

‘Everyone’s still very busy, so right now, we should be at the peak for the sector,’ said Mr Goh Yeow Lian, the executive chairman and managing director of building contractor Wee Hur.