The past year has been one of disruptions in numerous areas of life and particularly economic as countries locked down to prevent the spread of the COVID-19 pandemic. Millions shifted to working from home and across many industries, businesses were forced to adapt in unexpected and unprecedented ways. In most countries, construction is one industry that was able to continue functioning on-site after implementing safe ways of working. Moreover, among others, the construction industry has played a critical role in making many of the adjustments and shifts that the world had to undertake to function amid the ‘new normal’ which included prioritising the build of health care facilities, growth in data centres and logistics.
Inevitably, the national debt of most countries has soared with the enormous costs of lockdown and the wider health response to the pandemic. For many economies, the leveraging will continue to facilitate an economic recovery. This will include investment in infrastructure and energy transition, as well as other priorities that were the focus before the pandemic such as sustainability and reducing inequality in their societies.
Recent estimates by the World Bank shows that global GDP contracted by around 4 per cent in 2020. However, there is evidence that the construction markets across the globe have remained stable and resilient despite the unprecedented disruption to economic activity resulting from COVID-19. Moreover, construction has played a key role in the short-term economic recovery efforts launched by many governments, supporting jobs and businesses at a local level. It has remained a positive lever to spur economic activity and investment into cities and communities for priorities such as the shift to active travel during the pandemic.
RECOVERY IN HONG KONG & MAINLAND CHINA
As we start to plan for the recovery phase, many governments are planning recovery plans focusing to a large degree on infrastructure projects to create jobs, spur economic growth, and focus on sustainability efforts. Given their scale, there is a unique opportunity to delivery an optimised balance of economic, social and environmental value through these initiatives. However, this needs to be planned in from the outset.
Building back in a way that ensures longer term benefits will hinge crucially on the adoption of a broadly based and evidenced value framework to optimise the investments that are being made. This entails maximising existing forms of productivity and innovation so that investment programs are viable and affordable as well as incorporating new technologies that contribute to solving the climate change crisis. Creating a blueprint that places a high priority on increased productivity and optimal value creation will help to ensure that the industry is well equipped to continue to deliver future benefits, even as the scale of investment is reduced, and tougher choices on project priorities need to be made.
Arcadis Global Cities Director, John Batten III, stated that cities have seen the most severe economic impacts, as lockdown and social distancing has emptied commercial districts and severed global commercial ties. But cities are likely to be the focus of recovery efforts too when the crisis comes under control. City centre assets may need repurposing and big efforts will need to be made to ensure that transport systems and other critical infrastructure are safe and ready for when demand returns.
Francis Au, Arcadis’ Growth Director/City Executive at Hong Kong (SAR) and the Greater Bay Area, also stated that the contrasting performance of cities across the Greater Bay Area highlights just how much impact COVID-19 has had on Hong Kong. Initial lockdowns lasting three weeks in most cities in Guangdong Province of Mainland China were very strict, but measures were lifted earlier than other economies. Whilst development responded quickly in Mainland China, Hong Kong saw a quite significant reversal in activity and future demand as a result of the effect of the pandemic on the wider business and commercial economy. Whilst commercial development is proceeding at a healthy pace in most of the Greater Bay Area, recovery in Hong Kong is benefiting from public sector stimulus though the construction industry is begging for more.
Construction has played a key role in the short-term economic recovery efforts launched by many governments, supporting jobs and businesses at a local level.
Here are the highlights on the critical developments from Mainland China and Hong Kong during the COVID-19 recovery:
China’s economy saw GDP growth of (+)18.3% YoY, in Q1 2021, which presents a strong rebound, after the recession caused by COVID-19 pandemic in Q1 2020.
In Q1 2021, construction wages remained stable. Comparing with last quarter, the average basic construction product costs ﬂuctuated in price with rebar (+)10%, steel (+)15%, aluminium (+)13%, copper (+)18%, concrete (+)1% and cement (-)1%. The tender price climbs up by 3%. The construction market price level is anticipated to continue to rise in the next quarter.
Economy of Hong Kong is further recovering in 2021 after the year-long recession in last year. Gross Domestic Product (GDP) rose by 7.9% YoY in Q1 2021 after contraction in six consecutive quarters since Q3 2019. Amongst the GDP components, private consumption expenditure slightly recovered with (+)1.6% growth following decline in six quarters as the government is gradually relaxing the social distancing measures. However, not all industries are beneﬁted by the policy. Some service industries such as tourism still stay in a fragile state. Deﬂation ended in the ﬁrst quarter of 2021, Consumer Price Index (CPI) increased by 0.5% YoY in March 2021.
The Tender Price Index (TPI) remained constant as the last quarter and dropped by 2.5% YoY in Q1 2021. In Q1 2021, Steel price increased dramatically by 26% QoQ. Other material prices such as cement, sand, diesel fuel and basic architectural products also rose in this quarter. Wages of concretor and carpenter decreased by 8% and 11% YoY while mechanical ﬁtter had pay rise of 10% YoY in this quarter, wages of other labours remained stable in Q1 2021.
Arcadis is the leading global design and consultancy firm for natural and built assets. Applying our deep market sector insights and collective design, consultancy, engineering, project and management services we work in partnership to deliver exceptional and sustainable outcomes throughout the lifecycle of their natural and built assets. Arcadis employs 27,000 people, active in over 70 countries that generate EUR3.3 billion in revenues. The company support UN-Habitat with knowledge and expertise to improve the quality of life in rapidly growing cities around the world.