Compass International – The Global Construction Newsletter for April to June 2021:
COVID-19 has seen more than 150 million confirmed cases & close to 3 million deaths around the world, with more than half a million deaths in USA.
The pandemic has slammed the brakes on future economic / construction related growth for possibly the next 6 to 18 months in many countries.
The current thinking is that COVID-19 will be with us for the next 6 to 18 months, so don’t throw away your masks!
- In the USA, over 70% of Contractors have experienced project delays & disruptions in last 9 months.
- More than 80% of Contractors have suffered delays in obtaining domestic & international construction components.
- Over 75% of construction related companies have suffered project cancellations, suspensions or major delays.
A global recession is a distinct possibility in 2021 / 2022, look for inflation to move higher. Gasoline prices have increased in the US by 18% to 22% in the last 60 days.
The virus has created significant problems to the Global Construction sector, compelling many organizations to substantially modify, shut down or severely slow down ongoing construction activities.
However, we are starting to see signs the COVID-19 epidemic is starting to weaken, substantial headway has been made with the vaccine rollout and it appears that in North America economic recovery could be achieved in the next 3 to 6 months. That being said, we are not out of the woods yet, another COVID 3rd wave could bring on an economic recession in the 2nd half of 2021. The construction sector continues to face headwinds as we transition into the 2nd half of 2021.
- New single family homes & apartment construction continues to remain extremely strong, we could see close to 1 million new homes constructed in 2021, look for this blistering trend to cool down by the 4th Q of 2021.
- Commercial construction offices, hotels, shopping malls will continue to be sluggish, as this sector deals with working from home issues & shopping online.
- Infrastructure, renewable energy work looks to be well set for future Government investment.
- Manufacturing, Food, Pharmaceutical related construction is expected to see reasonable growth in the 2nd half 2021.
- The recent jump in oil & gas price is good news for Engineering firms & Contractors. Oil, Gas & Petrochemical construction is forecast to have a positive growth period for the next couple of years, even with the recent cancellation of the Keystone Pipeline by the Biden Administration. The number of US drilling rigs have increase by more than 25% across all US Oil & Gas basins in the last 10 weeks.
Obviously, 2021 is going to be a challenging year for the Global Construction industry, some counties especially in Asia have weathered the pandemic storm rather well.
Industrial Construction project have seen a significant loss of worker productivity due to COVID mitigation programs.
Industrial Construction projects will on average take longer to accomplish, for example a 12 month typical construction schedule will take anywhere from 14 to 15 months to complete post COVID-19.
As we continue to transition into 2021, we are possibly moving into a new “normal” that still needs to be fully understood. We believe COVID-19 will have a major impact on how Construction Projects are bid, procured and executed in the foreseeable future.
We have been talking with a number of Construction Managers, Site Superintendents, Planners & Estimators in the last couple of months regarding the loss of productivity on specific trades due to COVID-19 on Industrial Construction projects currently being constructed in the USA & Canada:
This is the feedback we are getting: The majority of Refinery, Power, Manufacturing Pharmaceutical, Food Production & Owner companies are including clauses / contractual language in their construction contracts / Requests for Proposal (RFP’s) to minimize the spread of COVID-19 within their production sites.
We have carried out an Order of magnitude increase on a $20 to $30 million Industrial project could be in $1.5 to $2 million range.
Current world political & economic risks & some positive issues facing the Global Construction Industry include:
- A 3rd wave of COVID-19 pandemic in Europe & other regions of the world appears to be a distinct possibility.
- The ongoing confrontational stance of China with India, Taiwan, Hong Kong, the USA & the countries bordering the South China Sea.
- The possibility of an all-out trade war between China and the US is still a possibility, as the US pins the blame of COVID-19 on China. It would appear we have entered a new Cold War between the US and China.
- North Korea continues to be a wild card, how will the new US administration deal with this problem.
- There remains a possibility of a prolonged Global Recession in the next 6 to 12 months.
- The loss of construction worker productivity on Industrial Construction projects related to social distancing, new safety rules & the need for personal protection, remain an issue TBD.
- Higher oil prices, US gasoline pump prices have increased by 33% in the last 3 months, is this a sign that inflation is about to kick in?
If the majority of these concerns can be resolved or put to rest then the Global Construction Industry 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, Africa & South America. However, the current global war on the COVID-19 needs to be won before this can be realized & this might take another year or two before this happens.
2nd Q of 2021 Construction Outlook for Major Countries:
2nd Q 2021 % GDP Growth
2nd Q 2021 Inflation %
2nd Q 2021 Unemployment %
Comments on Construction in 2nd Q of 2021
Future Spending Activity
Oil & Gas Owners / Operating Companies are taking a second look at their 2021 CAPEX budgets, with the recent strong rise in oil prices a number of CAPEX related Petro-Chemical, Energy & Power projects could move forward in the 3rd & 4th Q of 2021. The US construction sector tries to come to terms with the pandemic & the new normal.
A slow advance in consumer and business confidence is expected in the 2nd Q of 2021, look for the effects of COVID-19 to start to recede. Continuing higher oil prices will positively impact Canada’s oil patch. New RFQ’s / Bidding opportunities on commercial type projects should present themselves as we move further into 2021.
Brazil is seeing more than 4,000 COVID related deaths each day, with more than 12 million confirmed COVID cases & over 300,000 deaths, Brazil accounts for 25% of the world’s daily COVID-19 fatalities, many experts warn the worst may lie ahead.
BREXIT terms & conditions have finally been completed with a deal between the UK and EU. Once the COVID-19 pandemic is resolved, in say 3 to 6 months, the UK economy & construction sector could be set for a growth spurt. The pound sterling is starting to strengthen against the US Dollar.
The AstraZeneca Covid-19 vaccine has been suspended in Germany. The drawn-out & disorganized rollout of vaccinations is a serious problem in Germany. German economic & construction activity once the COVID-19 virus is alleviated is expected to improve, however this might take another 6 to 9 months. A lot of industry experts believe BREXIT will not be a good outcome for the German economy & construction sector, time will tell.
The drawn-out & confused rollout of COVID vaccinations is a serious problem in France. France & the rest of the EU have reached agreement on the terms of a deal on BREXIT. This could have ramifications on the French economy & construction sector. France has struggled with high unemployment since 2008. COVID-19 is an additional challenge. The full scale of the economic impact of the deadly COVID-19 on France is still TBD. This virus couldn’t have come at a worse time as France has struggled economically for the last 10 years. Engineering & Architectural firms are reporting a significant fall off of RFQ’s / new orders as we move into the 2nd half of 2021.
Russia announced in August that it had produced a COVID-19 vaccine (Sputnik COVID-19 vaccine), that went into full production in September 2020. Russia is starting to see a 2nd wave of COVID-19 cases, it is currently reporting over 4.5 million confirmed cases & close 100,000 deaths. Russia has closed its borders to foreigners in recent weeks. The recent rise in oil prices is good news for the Russian construction sector.
Japan has withstood the COVID-19 reasonably well with just over 470,000 confirmed cases and close to 9,000 deaths. The Japanese economy & construction sector is still underperforming. The cancelled 2020 Olympic games will move ahead in mid-2021, unfortunately without Olympic spectators in the stadiums.
China’s economy and construction sector has recovered quickly, painstaking lockdowns and population tracing policies checked the spread of the COVID-19 virus. The Chinese economy & construction sectors are starting see decent growth again. The consequences of the global economic impact of the deadly Coronavirus Pandemic is still TBD. Many US / European & Japanese manufacturing companies have plans to relocate their production facilities out of China, stay tuned.
The potential of border hostilities with China is a major concern. India continues to purchase advanced fighter jets & weapon systems, which is not a good sign. India has been hard hit with more than 12 million confirmed cases of COVID-19 resulting in more than 160,000 deaths. Prime Minister Narendra Modi has earmarked a $2 + billion fund to mitigate the effects of the Coronavirus Pandemic on the Indian population & industry. India now ranks # 5 in the economy league table, larger than both the UK & France, were will it be in the next 10 years?
2nd Q 2021 Prices at a Glance:
- Forecast Cost of a barrel of Crude Oil $58 – $69
- Forecast of Euro / US $ Exchange Rate 1.16 – 1.24
- Forecast of UK Pound / US $ Exchange Rate $1.36 – $1.42
- Forecast of Copper per pound $3.25 – $3.65
- Forecast of Aluminum per pound $1.11 – $1.19
- Forecast of Gold per Ounce $1,850 – $2,000
- US Construction Material Inflation (Basket of 10 construction materials) 0.9% – 1.8%
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