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CGS CIMB: Recovery of construction sector relies on govt infrastructure development

PETALING JAYA (Jan 18): Uncertainties are looming over the nation’s construction sector as political instability, meshed with the movement control order (MCO) implementation, are dampening the speed of the sector’s recovery, but analysts are seeing some silver linings backed by Budget 2021’s infrastructure allocation.

In its report today, CGS CIMB said the termination of the Kuala Lumpur-Singapore High Speed Rail (HSR) line will open a new possibility in “the likelihood that a revised version of the MRT 3 project could be given the green light ahead of the ongoing feasibility studies on the alternative KL-Johor Bahru (KL-JB HSR) line”.

Though the HSR project was cancelled, a replacement shorter-distance HSR which connects KL to Johor Bahru will likely continue instead, pending feasibility studies.

“Unless MRT3 and the likely alternative KL-JB HSR kick off with a viable model and are featured as two key anchor projects under the 12th Malaysia Plan (12MP), which the government had earlier targeted to be unveiled in 1Q21F”, the outlook of the construction sector will remain bleak.

Besides the announcement of the 12MP, other potentials for the first half of 2021 include a new tender for water contracts in Selangor and new private sector/public-private partnership (PPP) contracts.

Despite the potential silver linings though, the sector outlook for 1H2021 still fails to excite – amidst the uncertainties, says the CGS CIMB assessment.

The development of the country’s political and health landscape has affected the construction industry.

As MCO were reinstated, only critical construction projects have been allowed to operate. The declaration of the state of emergency until Aug 2021 also meant that parliament sittings have been suspended.

"For the construction sector, this leaves the 12MP as the only leading indicator for a potential longer-term recovery phase,” stated CGS-CIMB, adding that there is an allocation of RM37 billion for infrastructure under Budget 2021.

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