Global Construction Newsletter: July to September 2018

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The world’s two biggest economies (USA and China) are now in a war of words over trade, hopefully this major problem can be resolved in the coming months. The international construction market will continue to experience solid growth rates in the 2nd half of 2018 in most countries around the world. The global economy expanded by 3.2% in 2017 compared to the previous year, which bodes well for 2018 and beyond. Most of the world’s major economies are experiencing positive growth as we move into the 2nd half of 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 international construction market is forecast to be a $10 trillion market in the next 10 years, a 35% increase. The make-up and distribution of this value by region is as follows:

Region
2018 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 (5) fastest growing economies are:

  1. India 7.1%
  2. China 6.4%
  3. Vietnam 6.4%
  4. Philippines 6.3%
  5. Indonesia 5.6%

Major counties that will experience slow growth of less than 2% in the next (6) months include Japan, UK, New Zealand, France and South Africa. From the above list it appears that the best construction related markets for growth in 2018 are located in Asia. The South East Asian region will continue to be the fastest growing construction region.

The global pickup in economic activity is strengthening and will continue in the 2nd 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 2018. Increasing demand for all types of construction services in the USA and the Asia – Pacific Region (APAC) will compensate for slow growth in Europe and South America over the next year or two.

India’s construction sector has taken the # 1 most active ranking spot from China as we move into the 2nd half of 2018. Infrastructure, highways, airports, bridges, power plants and electrical transmission lines etc., is driving this phenomenal growth activity. This growth appears to be in the cards for the next five years or more.

The recently announced US steel (25%) and aluminum (10%) import tariffs that targeted at Canada, Mexico and the European Union went into effect at the beginning of June, these tariffs are expected to generate possible construction delays and increase metal(s) bulk material costs. Canada, Mexico and the European Union immediately announced a tit-for-tat trade tariff response against the US. This situation and the recently US announced $200 billion worth of possible tariffs on Chinese imports could have a major negative impact on short term growth prospects to the global construction market.

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

  • The prospect of a major trade war between China, Mexico, Canada, the European Union and the USA is a distinct possibility. The Chinese economy is very dependent on exports to the US, a trade war with the US could seriously impact construction activity in China.
  • The possibility of a conflict between the US and North Korea have diminished significantly with the recent meetings on June 12, 2018 between President Trump and Kim Jong-un. President Trump became the first US President to meet with a North Korean head of state. North Korea and the US signed an agreement to complete denuclearization of the Korean Peninsula, this could be a major boost for future trade and construction in this region of the world.
  • The political infighting and now the Special Counsel directed at President Trump and his possible election campaign ties to Russia that could lead to impeachment.
  • The political and territorial ambitions of Russia, now that President Putin has secured a new six year term.
  • Nobody knows what barrel oil will cost in the next six months, will it be $50 or $80 a barrel, oil prices have been moving upwards in the last four months.

If some of these issues 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, East Africa and South America. 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 timber 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 of 25% imported steel and 10% on aluminum products. 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 US.

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 to 24 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 7% in the 2nd half of 2018. The Indian construction sector is set to see strong and robust growth in 2018 and beyond, inflation is somewhat high at 4.9% and is forecast to trend upwards in the next six to nine months to more than 5.5%. Civil Engineering, Infrastructure and Commercial projects such as, transportation, ports, railways, low cost housing, schools, hospitals, manufacturing, fertilizer, petro-chemical, gas facilities and power plants are moving the Indian economy forward.

The Global Engineering, Procurement and Construction (EPC) scenarios for the 2nd half of 2018 are for the most part positive, from the more than ten years of economic difficulty and slow growth. India, China, Vietnam, Indonesia, Malaysia and the USA are the bright spot – these countries are experiencing decent growth in their construction sectors. On the other hand, certain counties such as South Africa, Venezuela France, Greece and Japan are still experiencing limited, less than 2% or no growth and some continue to experience high levels of unemployment in their construction sectors in the 10% to 20% range. Look for this to continue for the 2nd half of 2018.

The good news is that the International 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 significant need for low cost housing, schools, hospitals, power plants, potable water systems, roads, airports and the like.

Country
2018 % GDP Growth
2018 Inflation %
2018 Unemployment %
Comments on Construction 2018 Future Spending Activity

USA

3.6

2.7

3.9

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 of 3.2% to 3.6% in 2018.

2.3

2.4

5.6

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 $65 to $70 a barrel range.

2.7

3.6

11.2

Lots of labor and economic problems will continue to impact construction activity, however the economy is seeing signs of improvement. GDP is forecast to grow at an improving rate of 2.5% to 2.9% range in the 2nd half of 2018.

1.5

2.5

4.3

The economic impact of “Brexit” is still a major issue. The British housing and infrastructure market is now starting to trend upwards as we move into the 2nd half of 2018.

2.4

1.8

3.5

Germany is the largest economy in the Euro Zone, slow and steady growth appears to be on the cards for the 2nd half of 2018. The German GDP growth is forecast to be 2.3% – 2.6% in the 2nd half of 2018.

1.9

1.8

8.8

The French economy is forecast to grow by 1.7% to 2.1% for the 2nd half of 2018. Construction activity remains slow; however there are signs of activity in the infrastructure and transportation sectors There are number of major infrastructure / transportation projects in the pipeline that should be constructed in 2018.

1.8

3.3

5.0

The Russian construction market is forecast to experience nominal growth in the Oil / Gas sector and modest growth in the commercial / housing construction sector in the 2nd half of 2018. USA and European sanctions have seriously impacted the Russia construction sector in last three years, look for this to continue in 2018.

1.3

1.2

2.6

The Japanese economy is forecast to grow by 1.2% to 1.5% for the 2nd half of 2018. The Japanese construction industry continues to see slow but stable growth. The recent meeting between President Trump and Kim Jong-un, is viewed as a positive situation for the Japanese economy.

6.4

2.6

3.8

The prospects of a possible trade war between China and the US is a distinct possibility going into the 2nd half of 2018. The Chinese economy is showing some signs of moderating. Construction salaries and wages in some of the coastal cities are increasing in the 5% to 10% range. The recent meeting between President Trump and Kim Jong-un of North Korea, is seen as a positive situation for the Chinese economy.

7.1

4.9

5.9

India will continue to be the frontrunner of the Asian 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 2nd half of 2018. Infrastructure (roads, ports, bridges, electrical transmission lines etc.,) accounts for between 50% and 70% of India’s construction sector.

2nd Half 2018 Prices at a Glance

Forecast Cost of a barrel of Crude Oil
$59 – $69

Forecast of Euro / US $ Exchange Rate
1.10 – 1.20

Forecast Copper per pound
$3.00 – $3.25

US Construction Material Inflation (Basket of 10 construction materials)
2.5% – 3.2%

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