Construction sector comes crashing in Q2

What can buoy the sector in the coming quarters?

The construction sector remained in a dismal state and continues to be the weakest link in Singapore's economic performance.

According to figures from the Ministry Trade and Industry (MTI), the sector contracted 5.6% in the past quarter, extending its 6.1% decline in the first period of the year. This is on weak public and private sector construction activity.

"We believe public sector-led construction will be required to support growth. This may come in the form of public infrastructure projects, for which the government has brought forward $700m to commence work in FY17, ending March 2018, and FY18," Standard Chartered analysts Edward Lee and Jonathan Koh said. 

Meanwhile, Maybank analysts Chua Hak Bin and Lee Ju Ye said the government may have added to the pain with another foreign worker levy hike in July for construction.

However, the noted, " Recent strong private sector property sales may help the construction sector closer to year-end."

The Standard Chartered analysts said Private investment may stay muted in H2 as loan growth remains modest,
despite low interest rates.

"Domestic demand is likely to remain subdued as labour-market metrics stay soft. Falling real wages may weigh on private consumption, while the resident unemployment rate of 3.2% in Q1 (a seven-year high) could rise further. 8,500 jobs were lost in Q1, the most since Q2-2003." the analysts stated.