The Global Construction Newsletter Q1 2023

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Uncertain, encouraging, scary, optimistic, negative, positive & challenging are some of the words tossed around to describe the construction outlook in many countries around the world as we move further into 2019. The positive words for the most part, apply to India, Vietnam, Indonesia, China, Poland & the US – the negative words pertain to the UK, France, Italy, Germany, Japan & Russia.

The US-China trade quarrel that has been going on for more than two years could turn out to be a major problem for the global construction market, negotiations broke down in May after China backed out of an earlier agreement. The # 1 reason for this delay is that the Trump administration stepped up its scrutiny of Chinese telecom companies to future 5 G applications. President Trump recently cautioned President Xi Jinping that additional import duties / tariffs would be imposed on China’s imports if the two leaders fail to meet & agree to a new deal at the G20 summit in Japan in late June. The US is prepared to impose additional import duties / tariffs on additional $300 billion of Chinese imports. A possible full scale trade war between the US & China would have serious ramifications on future global construction activity.

Many experts believe these initial protectionist activities will have a minimal effect on global growth & future construction activity in in the 2nd half of 2019 & moving into 2020, however experts have been wrong before, on the assumption that this current spat does not turn into an all-out trade war between the two largest global economies. That being said, the Chinese economy is very dependent on exports to the US, a major trade war with the US could seriously impact construction activity in China & significantly reduce future GDP growth & lead to a substantial increase in China’s unemployment rate.

The current escalation of trade disagreements between China & the US doesn’t benefit either countries interests, the world’s #1 & #2 economies have both been in a war of words over trade in the last eighteen months, hopefully this major disruption to future global trade can be resolved in the upcoming G20 meeting late June 2019.

The US could ratchet up its trade sanctions threats on the European Union (EU) in the 2nd half of 2019, the German automobile industry could be the be the big loser of this situation, then again the (EU) could impose its own trade sanctions against the US.

The US is blaming Iran for (6) attacks on oil tankers in the Persian Gulf & the missile attack on a US drone. This is a troubling situation that could see a dramatic price spike in oil prices if this situation continues, 35% of the world’s oil requirements pass through this vital waterway.

President Trump reached an agreement with Mexico to avoid US economically damaging 5% tariffs on Mexican imported goods. Mexico will send 6,000 troops to its southern border to stop illegal migrants from Honduras, Nicaragua & Guatemala from travelling through Mexico to the US border.

British Prime Minister May officially resigned June 7th due to her failure to complete the Brexit process, the new date for Brexit is now October 31st, 2019. Will the new British Prime Minister (most probably Boris Johnson) be able to make this happen?

The global construction market has experienced significant growth from the 3rd Q of 2016 until the 2nd Q of 2019, close to 36 months, however like all things good things, this chapter is now over & in 2019 will see GDP growth rates from the more developed countries moving towards more historical lower levels, however the US GDP is still clipping along at 3.2%.

The US, Mexico & Canada have after a period of close to 12 months ended imposing import tariffs on steel 25% & aluminum 10%, the tariffs were finally removed in late May.

Certain Global Construction markets are perhaps not as positive looking as they were six months ago, we have concluded that we are starting to enter a slowdown period. That being said, 2019 will be for the most part be year of marginal growth in many countries.

Let’s assume that these trade disputes can be resolved, then the global construction market could continue to experience decent growth in the 2nd half of 2019 & beyond in most countries around the world. The global economy is forecast to expand by 2.6% in 2019 compared to 2018, this bodes well for construction related activity in the rest of 2019 & beyond, however there are recent signs that 2019 might not be as good as 2018. The majority of the world’s economies are experiencing positive if somewhat sluggish growth as we move into the 2nd half of 2019 & beyond. The International Engineering, Procurement & Construction (EPC) market is estimated to grow to $7.60 trillion by the end of 2019, up from $7.40 trillion in 2018. The make-up & distribution of this value by region is as follows: The international construction market is forecast to be a $10 trillion market by 2027, a 35% increase.

The (7) fastest growing economies and construction markets in 2019 will be the following Asian and African countries.

1. Bangladesh 7.3% GDP Growth.
2. Ethiopia 7.1% GDP Growth.
3. Vietnam 6.5% GDP Growth.
4. China 6.2% GDP Growth.
5. India 6.1% GDP Growth.
6. Philippines 6.1% GDP Growth.
7. Kenya 5.8% GDP Growth.

The US construction sector is performing really well as we move into 2nd half of 2019. Growth is for the most part occurring across most US industrial sectors, look for this positive trend to start to slow down in the 4th Q of 2019.

Major counties that will experience slow growth of less than 2% GDP growth in the next (6) months include Japan, Canada, Russia, Brazil, UK, Italy, Germany & France, which perhaps is the precursor to slower overall global construction growth in 2020.

From the above list it appears that the best construction related markets for growth in the remainder of 2019 are located in Asia, Africa & the US, these countries will continue to be the fastest growing construction markets in 2019. Increasing demand for all types of construction services in the US & the Asia – Pacific Region (APAC), Ethiopia & Kenya will compensate somewhat for slower growth in Europe, Russia & South America over the next year or two.

In November, the US, Mexico, & Canada endorsed a new trade accord, titled the US-Mexico-Canada Agreement (USMCA), this new trade arrangement will transfer some automobile vehicles & components produced in Mexico to the US & open up dairy products from the US into Canada.. Each country must now follow its domestic procedures before the agreement can be ratified to take effect.

By the year 2030, just ten years from now it is estimated that the world will need 25% – 35% more energy, potable water & food, therefore there will be a big push to engineer & construct related facilities.

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

• The possibility of an all-out trade war between China, the European Union & the US is still a possibility as we move into the 2nd half of 2019, the negative ramifications of this could be huge for the global construction market. Rising trade disputes present a serious risk of economic turmoil, will it come to this, seems unlikely, but you never know.
• The US. is blaming Iran for a number of attacks on oil tankers in the Persian Gulf, this is a troubling situation that could see a dramatic price spike in oil prices if this situation continues, 35% of the world’s oil requirements pass through this vital waterway.
• Despite North Korea test-firing several short range missiles in May, the US will continue to work toward denuclearization with North Korea.
• The ongoing “Brexit” debacle, & its possible consequence on the UK, the world 5th largest economy & the remaining 27 European Union economies.
• The political & territorial ambitions of Russia continues to be a concern to Eastern & Western European countries.
• The ongoing unrest in Hong Kong with more than 1 – 2 million demonstrators taking to the streets, how will the Chinese Government react to this? Hong Kong has since suspended its controversial extradition bill after these protests.

If some of these issues can be resolved or put to rest then the international construction market has an excellent chance to grow & prosper in the next 2 to 5 years particularly in some of the 2nd & 3rd world developing economies of South East Asia, East Africa & South America.

Crude oil prices are forecast to range between $58 & $67 a barrel for the remainder of 2019, this price range benefits a lot of counties & their construction sectors. If the recent attack on oil tankers in the Persian Gulf continues look for these prices to increase dramatically.

The US economic forecast remains relatively strong, the US GDP growth rate is still forecast to be in the 3.0% to 3.3% range for the remainder of 2019. Some economic experts are raising the possibility that the US will move into a recession in 2020 / 2021.

Building Information Modeling: (BIM). BIM is a computerized system of creating depictions of, process plants, manufacturing facilities, buildings, highways & the like. BIM increases engineering productivity, estimating routines, planning activities, it promotes teamwork & much more. BIM is currently used by many Architects & Engineers & appears to be on track to be one of the main software tools to be used in the Global Construction Industry. Look for BIM applications to be utilized more & more in the future.

The remarkable last two to three year surge in oil & gas production in the US (more than 75% of these facilities are focused in the US Gulf Coast region) has boosted a sizable increase of new & expanded oil & gas production facilities in all regions of the US, together with accompanying required pipelines, rail tracks & service roads. One of the current US administration’s major goals is to make the US completely independent of the need to import oil products, look for US domestic oil to increase significantly in the next 12 to 24 months. The US is now the largest producer of oil, exceeding 12 million barrels a day recently leapfrogging over both Saudi Arabia & Russia. EPC services related to airports & urban transportation facilities around the world is another market sector that is experiencing significant growth, new terminals, runways, roads, railroad stations, high speed trains, maintenance facilities, rail connections seem to be surfacing every week. This infrastructure work includes both new facilities & the refurbishing existing facilities, the value of this infrastructure work is estimated to be in the region of $35 to $50 billion in the next two years.

The “bottom line” is that the Global Construction market is forecast to see sustained / moderate growth in the next 12 to 24 months. This growth will be propelled by population growth, the movement of people from rural areas to cities & towns in Asia, South America & Africa. There will be significant need for low cost housing, schools, hospitals, food production facilities, power plants, potable water systems, highways, airports & the like to support this exodus.

2nd Half of 2019 Prices at a Glance:

Forecast Cost of a barrel of Crude Oil $58 – $67
Forecast of Euro / US $ Exchange Rate 1.05 – 1.15
Forecast of British Pound / US $ Exchange Rate $1.25 – 1.30
Forecast of Copper per pound $2.75 – $3.10
Forecast of Aluminum per pound $0.80 – $0.90
US Construction Material Inflation (Basket of 10 construction materials) 2.4% – 2.6%

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