Global Construction Newsletter: October to December 2018

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The escalation of trade clashes between China and the US doesn’t benefit either country’s’ interests, according to Government spokesmen from both countries. However, the world’s #1 and #2 economies have both been in a war of words over trade in the last six months, ratcheting up the stakes each month. Hopefully, this major disruption to future global trade can be resolved in the coming weeks. Assuming this trade dispute can be resolved, then the global construction market could continue to experience solid growth rates in the 4th Q of 2018 and beyond in most countries around the world. The global economy is forecast to expand by 3.3% in 2019 compared to 2018, this bodes well for construction related activity in 2019 and beyond. The majority of the world’s economies are experiencing positive (if somewhat slow) growth as we move into the 4th Q of 2018 and beyond. 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 make-up and distribution of this value by region is as follows: The international construction market is forecast to be a $10 trillion market in the next ten years, a 35% increase.

1. India 7.0%
2. Vietnam 6.4%
3. Philippines 6.3%
4. China 6.0%
5. Indonesia 5.6%

Major counties that will experience slow growth of less than 2% in the next (6) months include Japan, UK and France. From the above list, it appears that the best construction related markets for growth in 2019 are located in Asia. Asia, and especially South East countries will continue to be the fastest growing construction region.

The global pickup in economic activity is strengthening and will continue in the 4th Q of 2018 and beyond. 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 2019 and beyond. 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.

The possibility of an all-out major trade war between China and the USA is a distinct possibility as we move into from the 4th Q of 2018 into 2019. The US decision to impose import duties and tariffs on $200 to $300 billion of Chinese imports has signaled a risky magnification of its exasperation with China over what the US considers unfair trade practices. Many experts believe these initial protectionist activities will have a minimal effect on global growth and future construction activity in in the 4th Q of 2018 and moving into 2019, 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 and significantly reduce future GDP growth and lead to a substantial increase in China’s unemployment rate.

Hurricane Florence hit the US Carolina’s in mid-September, the extensive flood and wind damage is estimated to cost upwards of $35 + billion in construction repair work and will take more than a year for these two states to recover.

The US steel (25%) and aluminum (10%) import tariffs are still in place, however certain countries have been removed from the original list of counties and some new counties such as Turkey have been added to the list.

India’s construction sector has overtaken China as the most active construction market. Highways, airports, railroads, bridges, power plants and electrical transmission lines etc., is driving this exceptional growth activity in India. This growth appears to be in the cards for the next five years or more.

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

• The possibility of an all-out trade war between China and the USA is a possibility as we move into 2019, the negative ramifications of this could be huge for the global construction market. Will it come to this?…….seems doubtful.
• The likelihood of a conflict between the US and North Korea have diminished with the meetings between President Trump and Kim Jong-un, 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 and territorial ambitions of Russia continues to be a concern to Eastern European countries.
• The political infighting and now the Special Counsel directed at President Trump and his possible election campaign ties to Russia that could lead to possible impeachment.
• Uncertainty of future oil prices, what will a barrel oil will cost in the next six months, will it be $50 or $85 a barrel? Oil prices have been moving upwards in the last six months, prices could continue to increase with the US issuing new sanctions on Iranian oil and goods.

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 US and Mexico agreed in August to revamp the North American Free Trade Agreement (NAFTA), placing a burden on Canada to agree to new terms and conditions. Canada and the USA are currently re-negotiating a new NAFTA agreement.

Hurricane Florence hit both North and South Carolina in mid-September, the extensive flood and wind damage is estimated cost between $25 and $50 billion in construction work and will take at least 6 to 12 months for these two states to get back to normal.

The spectacular 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 and expanded oil & gas production facilities in all regions of the US, , together with associated required pipelines, rail tracks and 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 USA domestic oil to increase significantly in the next 12 to 24 months. The US is now the largest producer of oil, exceeding 11 million barrels a day recently leapfrogging over both Saudi Arabia and Russia.

EPC services related to airports and 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 and 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 Global Engineering, Procurement and Construction (EPC) scenarios for the 4th Q of 2018 and moving into 2019 are for the most part positive, from the more than ten years of economic difficulty and slow growth experience since 2008. India, China, Vietnam, Indonesia and the USA continue to be the bright spot, these countries are experiencing solid growth in their engineering and construction sectors. On the other hand, certain counties such as South Africa, Venezuela, France, UK, Argentina, 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 4th Q of 2018 and going into 2019.

The good news is that the Global 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, South America and Africa, the fact is that there will be significant need for low cost housing, schools, hospitals, power plants, potable water systems, roads, airports and the like.