The Global Construction Newsletter Q1 2023

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The global construction industry will continue to experience steady growth rates in 2020 issues surrounding a possible military action in the Middle-East and the final chapter of the Brexit situation, which are not expected to have a major impact on future construction activity. India, Vietnam, Indonesia, China, Indonesia, Poland & the US are just a few of the countries where their construction sectors are performing well as we move into the 4th Q of 2019.

Countries that are not expected to do well in the 4th Q are 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 5G 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 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.

A lot of experts believe these initial protectionist activities will have a minimal effect on global growth & future construction activity 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 present-day escalation of trade disagreements between China & the US doesn’t benefit either country’s interests, the world’s #1 & #2 economies have both been in a war of words over trade in the last twenty four months.

The hostilities between Iran and Saudi Arabia are a serious concern going into the 4th Q of 2019, the likelihood of an all-out war is a serious possibility. 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.

The Brexit saga continues, what happens now after suspension of UK Parliament was ruled illegal by the UK Supreme Court?

President Trump reached an agreement with Mexico to avoid US economically damaging 5% tariffs on Mexican imported goods. Mexico will send 20,000+ troops to its northern and southern border to stop illegal migrants from Honduras, Nicaragua & Guatemala from travelling through Mexico to the US border.

The global construction market has experienced significant growth from the 3rd Q of 2016 until the 4th Q of 2019, close to 42 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 2.9%).

A number of Global Construction markets are perhaps not as positive looking as they were six months ago (Western & Eastern European countries for the most part), we have concluded that we are starting to enter a gradual slowdown period. That being said, 2020 will be for the most part be an tolerable year for many countries.

Let’s presume that these challenges described above can be resolved in the near future. If they can, then the Global Construction market could continue to experience decent growth in the 4th Q of 2019 & beyond in most countries around the world. The global economy is forecast to expand by 2.6% in 2020 compared to 2019, this bodes well for construction related activity in the rest of 2019, however there are recent signs that 2020 might not be as good as 2019. 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 Construction market is estimated to grow to $7.76 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 grow to $11 trillion market by 2024, a 40% increase from 2019 levels

The (7) fastest growing economies & construction markets in the 4th Q of 2019 will be the following Asian & 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. Philippines 6.1% GDP Growth.
6. Kenya 5.8% GDP Growth.
7. India 5.4% GDP Growth.

The US construction sector is performing really well as we move into 4th Q of 2019. Growth is (for the most part) occurring across most US industrial sectors, look for this positive trend to start slowing down marginally in the 4th Q of 2020.

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.

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 2020. 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.

The new US-Mexico-Canada Agreement (USMCA) trade agreement that replaced NAFTA has been agreed by the three countries, this agreement needs to 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 these 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 4th Q 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 ongoing hostilities between Iran and Saudi Arabia in the Persian Gulf region, 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, the US will continue to work toward denuclearization with North Korea.
• The ongoing unrest in Hong Kong with demonstrators taking to the streets every weekend – how will the Chinese Government react to this? Hong Kong has since suspended its controversial extradition bill after these protests, however the protests continue.
• 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.

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 attacks on oil tankers in the Persian Gulf continues, look for these prices to increase considerably.

The US economic forecast remains relatively robust, the US GDP growth rate is still forecast to be in the 2.6% to 2.9% range for the remainder of 2019. Some economic experts are raising the possibility that the US will move into a recession in 2020 / 2021.

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 administrations’ 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 a significant need for low cost housing, schools, hospitals, food production facilities, power plants, potable water systems, highways, airports & the like to support this exodus.

4th Q 2019 Prices at a Glance:

• Forecast Cost of a barrel of Crude Oil $58 – $67
• Forecast of Euro / US $ Exchange Rate 1.05 – 1.12
• Forecast of British Pound / US $ Exchange Rate $1.25 – 1.30
• Forecast of Copper per pound $2.60 – $2.85
• Forecast of Aluminum per pound $0.75 – $0.90
• US Construction Material Inflation (Basket of 10 construction materials) 2.3% – 2.6%

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