In the first quarter, the overall construction industry expanded 4 per cent. Private sector construction activities expanded 2.8 per cent, the lowest for six years, while public sector works expanded 5.6 per cent.

"There are so many negative factors," KRC said in a research paper released yesterday.

The research house anticipates the sluggishness will continue throughout the year. Chief among the negative factors are soaring oil prices and interest rates, which will tend to rise further in the third quarter. On the sidelines are political uncertainties and the delayed implementation of the 2007 Budget Bill.

The only positive factor is the fact that several high-rise projects are being rushed into construction to avoid falling under new zoning regulations which came into effect on May 17.

KRC estimated that the overall construction investment this year could be Bt693 billion, compared to Bt657 billion in 2005 - stagnant growth of 0.7 per cent.

Out of that, private investment could contribute Bt357 billion, or 4 per cent up from Bt327 billion last year. Meanwhile, the delayed disbursement of the 2007 budget could lead to a shrinkage in public investment. Public construction could expand only 3 per cent to Bt337 billion, from Bt330 billion the previous year.

"Remarkably, growth is seen mainly by the increasing value of construction projects, not in terms of quantity," KRC said.

Next year, private investment could pick up if inflation eases alongside a slower growth in oil prices. This would lead to a possible reduction in interest rates. Meanwhile, if the political uncertainties are settled, this should restore investor confidence. Under these assumptions, private construction could grow 6 per cent in the year, said KRC.

However, external risks remain, particularly the economic slowdown in the United States and the country's huge current-account deficit. These could lead to volatility in the world's financial markets. Moreover, if US demand plunges, Asian countries' exports would be hard hit.

In terms of public investment, a sharp reduction is anticipated in the first half due to the delayed approval of the Budget Bill. Throughout the year, public construction work could drop 10 per cent.

This would lead to a 1.3-per-cent shrinkage for the entire construction industry next year. If so, it would be the first time in seven years that the industry has posted negative growth, KRC said.

"If the mega-projects can proceed after the formation of the new government, sentiment could pick up. The industry growth as a whole could expand more than 10 per cent per annum during the years 2008-2009," KRC predicted.

It also said prices for construction raw materials could rise by 4 per cent this year.