Global Construction Perspectives and Oxford Economics have in a conference call, announced the release of Global Construction 2020, a global forecast for the construction industry over the next decade.
The project has been sponsored by Cemex, Holcim, Lafarge and Orascom Construction Industries and extensively investigates the current nature of the global construction sector as well as examining its future prospectives from global, regional and country level perspectives. The authors carefully researched 35 of the world’s largest economies, which combined represent 85 per cent of global GDP.
During the conference call, two main drivers for growth were high-lighted: population growth, which is predicted to be dramatic in emerging markets, the rate of urbanisation. In addition, Adrian Cooper, the managing director of Oxford Economics commented that “it appears that economic growth has bottomed out,” and forecasted a more general recovery over the next one to two years, with a medium term return to the growth witnessed in the past decade. He also remarked that the recession sparked by the financial crisis had impacted particularly heavily on both manufacturing and construction, especially in as far as the residential sub-sector was concerned. Japan and Germany had suffered less in this regard, but this is perhaps misleading, given that both economies had witnessed little activity prior to the crisis.
Mr Cooper said that large stimulus packages had supported construction activity, but the long term impact on public debt will have implications for future construction.
Perhaps unsurprisingly, the report expects construction growth to be concentrated in developing countries, although the US is expected to perform relatively strongly in the coming years. China’s annual GDP growth is expected to continue to average around eight to nine per cent going forward, causing its share of global GDP to increase to 16 per cent in 2020, from the current seven per cent. In contrast, the Eurozone, which is expected to see sluggish growth, will see its share drop to 18 per cent from 23 per cent.
One interesting comment was that typically the construction industry recovers faster than the rest of the economy after a recession and that this is expected to be the case again.
Dr Mike Betts, Executive Director and Global Construction Analyst at JP Morgan, continued the conference call, by discussing how the top 15 construction markets are expected to change over the next 11 years.
Currently the order is:
1) USA 2) China 3) Japan 4) Germany 5) Spain 6) France 7) Italy 8) South Korea 9) India 10) UK 11) Canada 12) Brazil 13) Australia 14) Russia 15) Indonesia
Together, the global construction market is worth US$7.5tn, equivalent to 13.5 per cent of GDP. While global construction growth has risen slowly over the past five years (partially due to the poor performance seen over the latest two years). Dr Betts predicts that the 2009-14 period and the five years thereafter will see a recovery in developed countries (two to three per cent per annum) and growth in their developing counterparts (five to six per cent per annum), resulting in the global construction market growing in value at around four to five per cent a year.
Top performing markets include China, India, Indonesia, Vietnam, Egypt and Morocco. The country expected to see the fastest construction growth is Nigeria, due to a combination of its large population and extremely poor infrastructure, especially in terms of its power generation and transmission utilities (It currently ranks 131st in terms of electricity supply) India is expected to rank second, with similar drivers propelling growth upward, particularly investment in infrastructure.
The US is forecasted to be in 12th place for construction growth, with activity driven by a recovery in housing demand. On average new housing starts are usually around 1.5m each year, but at the height of the sub-prime crisis, they dropped to just a tenth of this figure.
In Spain, the report expects no growth over the 2009-14 period, but a return to growth thereafter, while a pretty strong recovery is predicted for the UK market. More rapid growth is expected for Greece, than in Western Europe, but it will lag behind its neighbours to the East. Poland will become one of the best performers in the coming years, primarily due to increased infrastructure activity driven by EU structural funds. Dr Bett commented that this already starting to be observed.
Another hot spot mentioned during the conference call is Brazil, which is going to see a construction boom thanks to the FIFA2014 and Rio2016 sporting events.
In China, the construction market breaks down as follows:
Residential 57 per cent Non-Residential 16 per cent Infrastructure: 27 per cent
This pattern is expected by the report’s authors to hold true for the next eleven years, with “pretty consistent” growth being observed for all sectors, at around the eight per cent level. China’s construction market is therefore expected to overtake the USA’s as the largest single global market, in 2018, while total global construction is expected to rise by 70 per cent over the next eleven years, to the point where it will represent 14.6 per cent of total world GDP. India will be in third place, followed by Japan. The latter’s resilience is apparently due to the absolute size of its market at present, as opposed to any significant growth.
Graham Robinson, Director at Global Construction Perspectives, commented that global construction returns are expected to average eight per cent per annum following the global recovery, but will be higher in emerging markets. According to contributors, such as the Royal institute of Chartered Surveyors, sustainability will be at the top of the agenda, while project teams and demographic will also be key factors in the evolution of the construction industry going forward. The point was made that the recent financial crisis is unlikely to cause Europe to suffer from the protracted recession experienced by Japan after the bursting of the Asian bubble back in the 1990s.
More information regarding the contents of the report is available at www.globalconstruction2020.com
