THE GROWTH of the construction industry is expected to slow to 3.6% as most activity is concentrated in areas affected by the enhanced community quarantine (ECQ), a report said.

Fitch Solutions Country Risk and Industry Research said in a report released on Friday that year-on-year growth in the sector for 2020 is expected to slow from the initial projection of 5.8%.

Most business operations, including construction, have halted throughout the enhanced community quarantine implemented since March 17.

Fitch Solutions said the majority of the total value of projects approved in previous years were concentrated in Luzon, including the National Capital Region.

“With strict ECQ measures imposed on Luzon, a large proportion of projects would have experienced stop work orders, leading to our bearish outlook for the Philippine buildings sector for 2020.”

The report said construction activity will still face challenges even after the ECQ is lifted and work in the sector resumes.

“Certain projects will face supply chain challenges, as the flow of construction materials and equipment will be disrupted, especially if sourced from foreign markets. Projects will encounter delays in delivery due to logistical challenges and shortages in supply due to disrupted business activity.”

The industry’s growth, the report said, will likely be dragged by less construction activity in the buildings sector as growth is expected to be at 2.8% year-on-year.

The value of 2019 building projects fell four percent compared to the previous year, but grew 37.2% compared to 2017.

“Although these figures remain healthy, and the construction activity generated by these projects will feed into our 2020 forecasts, we expect investment in residential, commercial and industrial real estate to take a hit in 2020, due to a deteriorating business and consumer sentiment not just within the Philippines, but around the world,” the report said.

Fitch Solutions said private developers could delay new projects until consumer sentiment improves. Travel bans, the report said, could have also created a drop in demand for residential real estate as foreigners are unable to enter the country to buy properties.

However, the infrastructure sector is expected to exceed overall growth, rising by 5.4% due to a possible 5.1% growth in transport and 5.6% growth in energy and utilities.

This growth is still lower than the 10.6% seen in 2019 after Luzon infrastructure projects halted.

“The approval of the Department of Transportation’s request to lift restrictions on certain projects, including utility relocation works, works across 13 rail projects, as well as rail replacement works on MRT-3 in Metro Manila, will provide a small boost to growth, but not enough for it to match 2019 levels.”

The timing of the resumption of government infrastructure projects under Build, Build, Build is uncertain, the report said, expecting more funds to be reallocated after P30 billion out of P534 billion had been diverted.

But there may be some healthcare infrastructure investment in the short and medium term, it said.

“The pandemic has exposed deficiencies in the existing healthcare system, as seen from the country’s relatively high death per confirmed case ratio. This means that the country (is) vulnerable to future episodes of healthcare crises,” the report said.

“We believe more focus will be placed on enhancing existing healthcare facilities, and building new ones, including new hospitals, community care facilities and nursing homes.”

Some areas, including Metro Manila, Region III and Region IVA, will continue to be under enhanced community quarantine up to May 15.

Fitch Solutions Country Risk and Industry Research is a unit of Fitch Group, a division distinct from Fitch Ratings. — Jenina P. Ibañez