Govt's move to hold back public sector projects a step in right direction: economists

SINGAPORE : Economists are calling the government's decision to hold back some S$2 billion worth of public sector projects a step in the right direction.

Apart from easing pressure on the construction sector, they said the move will help sustain the industry after current projects are completed past 2010.

For developers of projects like the integrated resort, rising construction costs have been a concern.

Just three months ago, the construction bill for the site is projected to be some 20 to 40 percent above original estimates.

But a reprieve is now in sight. Pressure is expected to ease after the government said it will hold back on certain projects.

Pushing the projects to 2010 will also help the outlook for the contractors. Alvin Liew, Global Research Economist at Standard Chartered said: "There's very little impact on the construction sector itself. It's just a matter of channelling some of the resources towards current activity. I don't think there will be much negative impact on the construction (sector) itself and other activity.

"That said, we think construction activity will be quite buoyant until maybe towards 2010 where most of the major projects like the integrated resort and some of the petrochem plants will be near completion.

"They might see a slowdown in construction activity then. These $2 billion worth of public projects should come in handy to prevent a significant slowdown in construction activity that year."

Jimmy Koh, head of Economics-Treasury Research at UOB said: "This year, we're going to get a magnificent double-digit growth (in the construction sector)."

This confidence is reflected in the stock market on Wednesday where construction-related counters closed mostly in the positive territory.

"We thought that some of the equity counters will be sold off, but we have not seen that. In fact, construction related, not property related, as well as crane-related companies did fairly well today," said Koh.

Economists said they were not too surprised by the government's announcement on Tuesday to hold back the projects.

Koh said: "We were not... surprised (as) there has been much talk internally over the last couple of months that they (public sector projects) were partially shelved. "They are now just making a public announcement on that because the market is fairly short of equipment, a supply-side constraint on construction related materials."

Economists said rising construction costs need to be kept in check. Too much pressure there may see spillover effects, such as in the price of public housing. Singapore's competitiveness may also be dampened.

Koh said: "The system right now is feeling the crunch of the last few years where there's a lack of investments. Even right now, if you try to put in supply side growth, the growth path is linear.

"But if you look at (the) demand front, it's pretty exponential, especially after the IR announcement, the F1 race, the rebranding and restructuring of Singapore and the entire structure of the Singapore economy. "So demand has been growing at an exponential rate. That has resulted in a lot of cost push, whether it's a commercial space or residential space. And that, one way or the other, have affected Singapore's competitiveness. So what we're seeing right now is a move in the right direction."

Apart from postponing projects, the Building and Construction Authority is looking at ways to expand the capacity of construction firms. - CNA /ls