Further cuts to Mena construction outlook

GlobalData has cut its construction output growth forecast for the Middle East and North Africa (Mena) region to -1.4 per cent in 2020 as lockdowns are extended to curb the spread of Covid-19.

The reduction follows downgrades of -1.1 per cent and -0.8 per cent announced by GlobalData on 4 May and 27 April, respectively.

Globally, construction output is expected to shrink by 2.3 per cent this year, despite the industry being exempted from lockdowns and curfews in most markets.

In the Mena region, falling oil prices and subsequent spending cuts are expected to impact construction activity during the year.

The Covid-19 pandemic is causing significant economic turmoil in the Mena region through coinciding shocks

Riyadh tripled its VAT rate and announced spending cuts worth SR100bn ($26.6bn) earlier this month to protect the long-term fundamentals of the Saudi economy.

Oman announced spending cuts worth RO500m ($1.3bn) in April to reduce its deficit projections for 2020.

In the same month, Dubai’s Department of Finance reportedly ordered a 50 per cent cut in capital spending and asked to delay new projects.

Bahrain also plans to reduce its 2020 expenditure by enforcing 30 per cent spending cuts and rescheduling construction projects.

Force majeure

In addition to reduced work opportunities, regional contractors also face the prospect of more litigation in the near term as force majeure claims are issued to justify work delays.

GlobalData says these clauses are being more widely used by firms needing to scale back or rearrange their business plans amid the pandemic.

Its Global Construction Outlook report dated 18 May adds: “The Covid-19 pandemic is causing significant economic turmoil in the Mena region through coinciding shocks – a fall in domestic and external demand, disruption of production and tightening of financial conditions.

“The region’s oil exporters must also confront the additional shock of plummeting oil prices.”