Global Construction Newsletter: January to March 2018

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45 of the world’s major economies are experiencing positive growth as we move into 2018. The International Engineering, Procurement and Construction (EPC) market is estimated to grow to $7.40 trillion by the end of 2018, up from $7.15 trillion in 2017 – an annual increase of 3.5%. The make-up and distribution of this value by region is as follows: The international construction market is forecast to be a $10 trillion market in the next 10 years, a 35% increase.
Region
2017 Value in Trillions $’s

North America

1.97

South America

0.62

Western Europe

1.60

Eastern Europe

0.52

Middle East

0.62

Asia / Australia & New Zealand

1.86

Sub-Sahara Africa

0.21

Total

7.40

  The global pickup in economic activity is strengthening and will continue in the 1st Q of 2018. The worldwide construction market is forecast to experience a solid growth cycle, increasing between 3% and 4% (average 3.5%) in the next (10) years, assuming no major conflicts or economic disruptions occur. India, China, Vietnam, Indonesia and the USA, are projected to be the leading major construction markets that will experience above average growth in the 1st half of 2018. India’s construction sector appears to taking the # 1 most active ranking from China as we transition out of 2017 and move into 2018. The Trump administration is initiating the renegotiating of North American Free Trade Agreement (NAFTA) with Mexico and Canada, this could possibly impact construction material costs, specifically lumber products. Changes to (NAFTA) or US withdrawal from (NAFTA) risks encountering retaliatory import duty / tariff increases. The US Commerce Department has started to introduce import tariffs between 25% and 125% on imported carbon steel reinforcing rods from Japan, India, Turkey and possibly other countries. Also being considered are import duties ranging between 15% and 25% on Canadian Timber / Lumber products such as framing and plywood. Canada sells $5 billion per year of Timber / Lumber products to the USA. The months of November and December saw crude oil prices rise above the $60 a barrel for the first time in over two years, winter stockpiling in the USA and Europe and positive economic growth are the issues fueling this rise. The Trump administration recently announced a ten year $1 trillion plan to fund new infrastructure (highways, airports, bridges, tunnels and the like) funded for the most part by non-government bonds and private investing schemes. Some industry experts believe that the US infrastructure needs an estimated $2 to $3 trillion to be spent in the next ten years. One of President Trump’s major goals is to make the USA completely independent of the need to import oil products from OPEC countries or any countries that appear unfriendly to USA views and interests, look for USA domestic oil to increase significantly in the next 12 months. India will overtake China and the USA with the highest direct foreign investment in 2018, its economy is forecast to grow by more than 6.4% in the 1st half of 2018. The Indian construction sector is set to see strong and robust growth in 2018 and 2019. Infrastructure, major roads, ports, airports, low cost housing, schools, hotels, manufacturing, fertilizer, petro-chemical, gas facilities and power plants are driving the Indian economy forward. The Global Engineering, Procurement and Construction (EPC) scenarios for the 1st half of 2018 are for the most part somewhat positive, from the more than nine years of economic difficulty we have witnessed. India, China, Vietnam, Indonesia, China, Malaysia and the USA are seeing decent growth in their construction sectors. However certain counties such as South Africa, Brazil, Venezuela Argentina and European countries are still experiencing limited or no growth and high levels of unemployment in their construction sectors – in the 10% to 20% range, look for this to continue for the 1st half of 2018. South America’s construction sectors for the most part continue to struggle with reduced demand for EPC services and new construction. The Global Construction market is forecast to be a $10 trillion market in the next decade. This growth will be driven by population expansion, the movement of people from rural areas to cities and towns in Asia and Africa, there will be a crucial need for low cost housing, power plants, potable water systems, roads, schools, hospitals, airports and the like.

60 # Countries GDP Growth Rate Projections for 1st Q 2018: (note: this can be used as a metric to gauge potential construction growth activity in each country).

GDP 0% – 1%

Brazil (0.8%)
South Africa (0.6%)
Venezuela (0.0%)

GDP 1% – 2%

Argentina (1.8%)
Colombia (1.2%)
Denmark (1.8%)
Greece (1.6%)
Italy (1.8%)
Japan (1.8%)
Mexico (1.8%)
New Zealand (1.5%)
Portugal (1.5%)
Russia (1.3%)
Spain (1.7%)
Switzerland (1.6%)
UK (1.7%)

GDP 2% – 3%

Algeria (2.9%)
Australia (2.4%)
Austria (2.6%)
Bahrain (2.9%)
Belgium (2.4%)
Bulgaria (2.4%)
France (2.0%)
Germany (2.4%)
Hungary (2.7%)
Israel (2.8%)
Nigeria (2.1%)
Norway (2.4%)
Peru (2.7%)
Romania (2.5%)
Saudi Arabia (2.4%)
South Korea (2.6%)
UAE (2.8%)

GDP 3% – 4%

Bolivia (3.3%)
Canada (3.3%)
Costa Rica (3.2%)
Ireland (3.0%)
Kenya (3.4%)
Kuwait (3.0%)
Hong Kong (3.1%)
Netherlands (3.3%)
Poland (3.3%)
Sweden (3.2%)
Singapore (3.4%)
USA (3.4%)

GDP 4% – 5%

Cambodia (4.7%)
Czech Rep (4.2%)
Egypt (4.0%)
Thailand (4.3%)
Turkey (4.3%)

GDP 5% – 6%

Bangladesh (5.7%)
Indonesia (5.1%)
Laos (5.9%)
Malaysia (5.3%)
Pakistan (5.0%)
Philippines (5.8%)

GDP 6% – 7%

China (6.2%)
India (6.4%)
Vietnam (6.1%)
From the above chart it appears that the best construction related markets for growth in 2018 are China, India, Vietnam, Philippines, Bangladesh, Indonesia, Malaysia, Pakistan and the USA, based on the overall size of the USA construction market.

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

  1. The possibility of a conflict between the USA and North Korea and another potential clash between China and India on a disputed border issue.
  2. Nobody knows what barrel oil will cost in the next six months, will it be $40 or $70 a barrel, oil prices have been moving upwards in the last two months.
  3. The political infighting and now the Special Counsel directed at President Trump and his possible election campaign ties to Russia, has slowed down his agenda.
  4. The continuing ISIS inspired terrorist attacks in Barcelona, Manchester, London, Nice and Paris and most recently in New York City.
  5. China’s reclamation and continuing construction projects in the Spratly Islands, a highly disputed area in the South China Sea and the response of China’s neighbors and The Trump administration.
If some of these problems can be resolved or put to rest then the international construction market has an excellent chance to grow and prosper in the next 2 to 5 years particularly in some of the 2nd and 3rd world developing economies of South East Asia, Africa and South America.
Country
2018 % GDP Growth
2018 Inflation %
2018 Unemployment %
Comments on Construction 2018 Future Spending Activity
USA
3.4
2.4
4.1
Construction activity overall in the USA is forecast to increase by 4% to 5% in 2018 over 2017 levels. Commercial / Infrastructure construction gradually improving in all areas of the USA. The USA economy will continue to grow at an improving rate (3.4%). President Trump could be “a shot in the arm” for most of the US Energy Industry (oil, natural gas and coal industries) and Construction Industry in the next four years.
3.3
1.9
4.3
Construction (hotels, offices, shopping malls, institutional work and housing) is steadily improving in all Canadian Provinces. Oil and Gas CAPEX work has started to see a slight pick-up with current oil prices in the $57 – $65 a barrel range.
0.8
3.4
12.2
Lots of labor and economic problems will continue to impact construction activity, The change in leadership will not put a quick fix of Brazil’s economy and construction sector, the recession is expected to continue throughout 2018. GDP is forecast to grow in the discouraging 0.6% to 0.9% range in the 1st half of 2018.
1.7
2.7
4.3
The economic impact of “Brexit” and the election of Donald Trump is still being felt, the Pound Sterling has dropped more than 10% against the US Dollar in the last 12 months. The British housing and infrastructure market is now starting to trend upwards again as we transition into 2018.
2.4
1.8
3.7
Germany is the largest economy in the Euro Zone, slow and steady growth appears to be on the cards for the 1st half of 2018. The German GDP growth is forecast to be 2.2% – 2.6% in the 1st half of 2018.
2.0
1.3
9.3
The French economy is forecast to grow by 1.9 to 2.2% for the 1st half of 2018. Construction activity remains slow; however there are signs of activity in the infrastructure and transportation sectors. France elected a new President – Emmanuel Macron. There are number of major infrastructure / transportation projects in the pipeline that should be constructed in 2018.
1.3
3.7
5.1
The Russian construction market is forecast to experience minimal growth in the Oil / Gas sector and modest growth in the commercial / housing construction sector in the 1st half of 2018, construction work for 2018 World Cup continues. USA and European sanctions have seriously impacted the Russian construction sector in 2017, look for this to continue in 2018.
1.8
0.6
2.7
The Japanese economy is forecast to grow by 1.5% to 2.0% for the 1st half of 2018. The Japanese construction industry continues to see slow but stable growth. What to do about North Korea is a major issue that could eventually impact the economy.
6.2
1.7
4.0
The ongoing potential conflicts between the USA and North Korea could result in US economic policy on future trade could generate some challenges for the Chinese economy and its construction sector, in view of President Trump’s comments on trade with China. The Chinese economy is showing some signs of moderating; this has and will impact future construction activity. Add to this the devaluation of the Yuan, the major drop in the stock market and the property “boom” bubble that still is expected to play out and the North Korean impasse points to possible problems ahead for the Chinese construction market. Construction salaries and wages in some of the coastal cities are increasing in the 5% to 10% range. China and India’s border dispute has risen to an uncertain level which could cause problems in 2018.
6.4
3.5
5.0
India will be the frontrunner of the “Asian Tiger” economies. Foreign investment is pouring into India as major US, European and Japanese companies eye India as a major growth country, look for this trend to continue in the 1st half of 2018. Infrastructure (roads, ports, bridges, electrical transmission lines etc.,) accounts for between 50% and 70% of India’s construction sector.

1st Half 2018 Prices at a Glance

Forecast Cost of a barrel of Crude Oil

$57 – $64

Forecast of Euro / US $ Exchange Rate

1.10 – 1.15

Forecast Copper per pound

$3.05 – $3.20

US Construction Material Inflation (Basket of 10 construction materials)

1.9% – 2.5%

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