Coronavirus will disrupt global construction sectors, but activity resuming in China: Moody's

Moody's Investors Service said in a new report on Friday that business conditions and revenue growth potential are deteriorating rapidly for construction companies globally.

"The spread of the coronavirus and the associated quarantines, social-distancing measures, travel restrictions and logistics disruptions have led to suspensions and delays in construction activity," said Moody's Vice President and Senior Analyst Sue Su.

Construction related to oil, gas and mining is also subject to potential delays and cancellations given weak commodity prices.

"US, European and Australian construction companies are starting to feel the pain but China, which was hit first and hard by the coronavirus outbreak, is showing signs of recovery," added Su.

Strong order backlogs will provide some revenue support for companies once they are able to resume construction activity, while economic stimulus measures, if any, also have the potential to limit revenue declines.

But the effect of the disruptions on individual construction companies' credit quality will depend on how much revenue companies lose amid the construction halts and delays, when and how quickly they can resume construction and the degree to which their liquidity, access to funding or both are hurt.

In the United States and Europe, construction activity has been suspended in some places and slowed in others, while projects are also being delayed amid economic weakness.

Work stoppages are not yet in effect in Australia but governments have imposed social-distancing rules and border closures to combat the spread of the virus.

Even before the virus-related disruptions, Australia was facing reduced construction activity due to delays in large infrastructure projects and weaker housing starts.

Meanwhile in China, construction has resumed on the majority of the key infrastructure projects on which activity was suspended or delayed.

And with an expected increase in government infrastructure spending and strong order backlogs, Moody's expected companies in China to recover much of the revenue they lost earlier this year.