CONSTRUCTION

While the construction sector has been slowing down after one of the strongest expansionary cycles, the Covid-19 crisis brings major headwinds. Short-term business interruption compounds with uncertainty over the timing of restart and recovery. SMEs are particularly affected: The crisis could spark a profitability crunch for smaller companies in the sector, particularly in Europe. Emerging from the crisis will be characterized by a higher cost of complying with safety regulations. Companies have adopted coping strategies, namely safeguarding liquidity through debt issuance and dividend cuts. These will help carry large diversified companies through the crisis. Smaller ones do not have the same ability to execute such strategies. Policy support through empoyment-retention schemes, loan guarantees and support for housing energy-related projects are helpful but will not alter the picture of a sector that will see compression in activity and margins this year. We see sustained opportunity, mainly for large companies, from infrastructure and energy activity, which is sustained.