Abstract
South Korea’s construction industry has been hit by the global economic
downturn, with the impact
already highly visible on the sector. In
BMI’s Q409 South Korea Infrastructure Report we are forecasting
a
contraction of 16.73% year-on-year (y-o-y) in 2009, reaching a value of
KRW62.40trn (US$50.69bn).
Although the country’s infrastructure
sector has experienced a slow-down in the year so far, there are
positive
signs emerging from the industry that activity is due to pick up.
In the
transport sector, the government has announced a major expansion project for
the country’s main
airport, Incheon International. The US$3.1bn
project includes a new passenger terminal and increasing
capacity by 41%
to 62mn passengers per year. It is also involves upgrading transport links to
the airport.
Evidence of work progressing in the subsector came with the
completion of two expressways in July
2009, both of which were sponsored
by Macquarie Korea Infrastructure Fund.
Renewables and the umbrella term
of green initiatives continue to be a major element of the country’s
infrastructure sector, and indeed its economic stimulus efforts. The country
announced a green new deal
in early 2009, pledging an investment of around
KRW50trn (US$39bn) for green initiatives in order to
create jobs and
stimulate the economy. This has been followed by efforts to build up a local
industry for
renewable energy technology and components, the launch of the
fist tidal power plant in the country,
pledges by the nine state-owned
power companies of combined investment exceeding US$2bn from 2009
to 2011,
and the entrance of JP Morgan to the country’s green sector in June
2009, with plans to launch a
US$1bn investment fund called Korea Green
Funds.
The government’s efforts to sustain activity in the
construction industry, or at least make up for some of
the diminished
private sector investment, appear to be bearing fruit, and indeed have
prompted a revision
in our GDP forecast for 2009, up from -3.3% to -1.9%
for 2009. This in turn provides upside risks for our
forecasts for the
construction industry, especially for 2010, when the funds should filter
through to
activity. Indeed, South Korea has released Q408 data for the
construction industry including sub-sector
breakdowns and data from Q408
showing that civil construction, i.e. infrastructure, actually grew
compared with the same period in 2007, by 11.14% in nominal terms.
However, the picture from the non-infrastructure sector looks bleak, meaning
that we are maintaining our
forecasts for the construction sector as a
whole for the time being at least. The Q408 breakdown
illustrates that the
residential and non-residential construction industries have both been hit
hard with a
nominal contraction of 24% and 7.5%, respectively, compared
with Q407.
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