Archived: April / May 2016 Global Construction Newsletter

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The global construction industry going into the 2nd Q of 2016 is definitively showing clear indications of improving. Nevertheless, while the outlook for Global Construction mostly encouraging, it’s also a mixed bag. The construction sectors in India, Vietnam, Indonesia, China and the USA are doing reasonably well. Some market such as Brazil, Russia and some Western European countries are not performing that well. The global construction sector continues to grow, but then again so do the worries about the remainder of 2016 and beyond. The recent tragic terrorist attack in Brussels on March 20th could impact some European economies that could trickle down into their construction sectors. The BRICS (Brazil, Russia, India, China & South Africa) construction sectors are not doing that well. Brazil’s government is considered by many to be inept, many US and European manufacturing companies have recently cancelled or delayed projects in some of the BRICS. Russia has many issues to face: # 1 is the price of oil, and lower oil prices continue to slow down the Russian economy and its construction sector. Russia’s economy is very much dependent on oil and both economies are forecast to stay flat or weaken in 2016. India will be the best the performing BRICS; its’ economy is forecast to grow by more than 7% in 2016. China is slowing down rather rapidly, look for the slowdown to continue in 2016. Inadequate numbers of skilled workers will persist in holding South Africa’s economy back in 2016. The global construction prospects for the rest of 2016 are for the most part promising, from the more than eight years of economic difficulty. The Global Financial Downturn has seen prolonged periods of economic stagnation in a number of countries that include Greece, Spain, Ireland, Portugal, Russia and a number of Eastern European countries.

As we move into 2016, it would seem that the global economy and the associated construction sectors are recapturing some energy again. The Global Construction market is projected to expand over the next five years to a value of $9 to $11 trillion. This growth will be driven by population expansion, the movement of people from rural areas to cities and towns, lower cost labor / trade opportunities and the development of basic infrastructure needs (roads, schools, hospitals, airports & the like).  It is estimated that between $250 billion and $500 billion of Oil, Gas and Pipeline EPC / EP projects around the world have been cancelled. The global oil market might be moving on the way to some stability, some experts are projecting oil to be in the $45 to $55 a barrel by the end of 2016. Counties that will see best growth in there construction sectors in 2016 will be India, China, Indonesia, Malaysia and the Philippines. Countries that will see no growth in their construction sectors in 2016 will be Venezuela, Russia, Argentina, South Africa and Brazil.

Regional GDP Growth in 2016:

 

Region Forecast of 2016 GDP Growth
North American 1.7% to 2.7%
South America 1.1% to 2.3%
Western Europe 1.2% to 1.7%
Eastern Europe 0.9% to 1.3%
Middle East 2.8% to 3.3%
Asia / Australia & New Zealand 4.1% to 5.0%
Sub-Sahara Africa 3.0% to 3.6%

 

Current political and world issues that could impact the above somewhat upbeat comments are:

 

  1. Nobody knows what a barrel oil of oil will cost in the next six months, will it be $40 or $60 a barrel? Some industry experts are forecasting an oil glut for the next 5 years as half a million barrels a day of Iranian oil is allowed to enter the marketplace, then again oil prices have been moving upwards again in the last 60 days, it’s fair to say that no one knows where oil prices will be in 3 to 6 months.
  2. The huge migration of refuges / asylum seekers from Syria, Iraq, Afghanistan & Africa, thought to number anywhere from 2 to 5 million people (and possibly more) that are currently or planning on entering Turkey and Greece and moving north to Germany, Austria and Sweden – the cost of providing housing, education and integration into the country that these individuals eventually reside could turn into a huge economic challenge / burden to the European Union.
  3. The slowing down of the Chinese Economy and construction sector.
  4. The ongoing Global Terrorist problems specific to ISIS (i.e. Brussels on 3/20) & Al Qaeda that appears to be spreading in Europe and to some African countries.

 

If some of these issues can be solved or put to rest then the global construction sector has a decent chance to grow and prosper in the next two to five years particularly in some of the 2nd and 3rd world developing economies of South East Asia, Africa & South America. In 2016 World GDP growth is forecast to be in the 2.5% to 3.3% range.