Global Construction Newsletter: January to March 2020

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Executive Summary:

The Iranian General succeeding General Soleiman who was killed in early January by a US drone, has avowed retaliation on the US and its allies. President Trump is promising a fast and disproportionate response to any Iranian strikes. This latest development may well impact economic trade in the Middle East in the near term.

Global construction is forecast to exceed $8.25 trillion by 2020. This takes into account both government / public works and private construction expenditures. The USA, China and India will be the leaders and most active countries completing more than 50% of all global construction work in the next five years, with Indonesia, Nigeria, Mexico, Vietnam, Ethiopia, Poland and the UK experiencing strong construction growth in the next couple of years.

Construction is a huge industry that is a major component of many country’s GDP and employing millions of construction professionals, skilled and unskilled construction workers. The industry is forecast to account for more than 13% of the world’s economic output by 2025.

The global construction market is growing and experts believe this growth will continue well into the next five years. Issues surrounding a possible military action in the Middle-East seemed to have waned and the final chapter of “Brexit” seems to be at hand with the recent Conservative party win in the UK election that promised Brexit by the end of January 2020.

Five years from now in 2025 the top ten construction markets will be.

1. USA
2. China
3. India
4. UK
5. Germany
6. Japan
7. France
8. Indonesia
9. Mexico
10. Brazil

Vietnam, Thailand and Indonesian construction sectors are benefiting from US and European major companies building facilities in these countries, many of these companies are moving away from China to take advantage of lower production costs and wage rates in these countries.

The US economy remains strong going into 2020. The first phase of a trade deal with China is a positive for both economies and construction sectors.

China’s economy will slow down more in 2020, as the Chinese Government efforts to provide economic stimulus falters.

Europe, especially both Germany and France will experience a tough year economically as they both struggle to grow their economies.

China conveyed cautious optimism in early December about the first-step trade agreement that dials down a trade war it accuses the US for initiating. Experts believe the deal in the short term would lower uncertainty for companies. The US-China trade quarrel that has been going on for more than three years, the new agreement could turn out to be a major plus for the global construction market in 2020.

The potential hostilities between Iran and Saudi Arabia are a serious concern going into the 1st Q of 2020, the likelihood of an all-out war is a serious possibility.

The UK / European Union “Brexit” impasse looks like it will be positively resolved in the 1st Q 2020, this will be a boost to the UK construction sector in 2020.

The international construction market is forecast grow to $12 trillion market by 2024, a 45% increase from 2019 levels

The chart below indicates the regional market share for the year 2020.

The top 10 fastest growing economies & construction markets in the 1st Q of 2020 will be the following Asian & African countries.

1. Bangladesh 7.1% GDP Growth
2. Myanmar 6.9% GDP Growth
3. Ethiopia 6.7% GDP Growth
4. Ivory Coast 6.6% GDP Growth
5. Vietnam 6.4% GDP Growth
6. China 6.0% GDP Growth
7. Indonesia 5.6% GDP Growth
8. Philippines 5.9% GDP Growth
9. Kenya 5.8% GDP Growth
10. India 5.6% GDP Growth

The US construction sector is performing really well as we move into 1st Q of 2020. 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.

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 replace NAFTA has been agreed by the three countries, this agreement has been agreed in principal by the three countries, it needs to be approved to take effect, and this approval is set to take place in the 1st Q 2020.

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 and the USA seems to have diminished considerably with the agreement of Phase 1 arrangement.
• The European Union & the US is still in a stalemate regarding tariffs as we move into 1st Q 2020.
• The killing of a leading Iranian General in Iraq in early January and the potential for hostilities with the US and its allies could seriously impact the economies & construction sectors of a number of Middle East countries as we move into the 1st Q of 2020.
• North Korea continues with test-firing short range missiles and testing rocket systems, this could be a major problem going into 1st Q 2020.
• 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 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 & $68 a barrel for 1st Q 2020, this price range benefits a lot of counties & their construction sectors. The recent attacks on oil tankers in the Persian Gulf appears to have moderated in the last month or two, this should keep crude oil prices in the range indicated above.

The US economic forecast remains relatively robust, the US GDP growth rate is still forecast to be in the 2.4% to 2.7% range for the 1st Q of 2020.

The extraordinary 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, etc. 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 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 huge exodus.

1st Q 2020 Prices at a Glance:

• Forecast Cost of a barrel of Crude Oil $56 – $66
• Forecast of Euro / US $ Exchange Rate 1.05 – 1.11
• Forecast of British Pound / US $ Exchange Rate $1.30 – 1.35
• Forecast of Copper per pound $2.80 – $2.95
• Forecast of Aluminum per pound $0.85 – $0.95
• Forecast of Gold per Ounce $1,400 – $1,550
• US Construction Material Inflation (Basket of 10 construction materials) 1.9% – 2.3%

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