The Global Construction Newsletter for Q1 2023:
Click on the Map to View Specific Region's Construction News
Executive Summary:
The recent major damage/leaks and disruption of the Nord Stream gas pipeline under the Baltic Sea have amplified fears of major natural gas shortages in Europe. Was this sabotage and if so, who was responsible for this? This will increase problems for European industry, especially in Germany and its citizens with the cold winter months ahead.
It looks like lower growth and higher inflation are in our future for at least the next 3 to 9 months and possibly longer. The global economy is slowing down as sky-high inflation, energy oil price spikes, supply chain challenges, the war in Ukraine, and lending rate increases continue to impact economic growth and construction activity as we move into 2023.
The global real GDP growth forecast is trending lower. 2023 is expected to grow slowly by 2.4% to 2.8%. Extreme inflationary difficulties seem to have intimidated many Owner/Operating companies. Many of these companies have delayed future CAPEX capital investments for the next 6 to 12 months.
Inflation is increasing in just about all countries. This could be a serious problem for the construction sector in 2023. Increased construction labor/material costs and shortages of key construction materials remain a problem. Construction materials and supply chain issues are causing price spikes, shortages, and delivery delays.
For more than 12 months, the international construction industry has faced the following challenges:
- Supply chain issues/interruptions, causing delivery delays. (China is still imposing COVID lockdowns).
- High oil and gas prices (gasoline/petrol and diesel costs have just about doubled in the last 6 months).
- With sky-high inflation, most countries are facing this predicament.
- Construction material cost increases and shortages.
- The shortage of skilled construction labor and sub-contractors.
- The ongoing Russia – Ukraine conflict.
- Asia’s possible flash points South China Sea – China – Taiwan and North Korea.
The vast majority of construction bulk materials, such as timber/plywood and OSB, steel products (rebar and structural steel), copper products, roofing, cement, concrete, and plumbing and electrical components have started to decline from their high prices experienced back in the 1st and 2nd Q of 2022, some of these bulk construction materials have declined by as much as 25%, unfortunately, most construction bulk materials and to some extent, construction-related equipment, such as HVAC components, pumps, electrical equipment, is still 5% to 15% or more expensive than 12 months ago.
US unemployment climbed to 3.8% in September. Look for this number to increase from 4% to 4.5% in the upcoming 3 months. US construction-related unemployment is between 5.5% and 6.5%.
The US Federal Reserve has started to vigorously increase interest rates to combat the 8.9% inflation rate, this will impact the US home builders/commercial construction sector and will cause a contraction of the US construction sector.
Construction inflation/escalation in the USA is between 8.8% and 9.2%, Canada is seeing between 7.7% and 8.2%, an 18-year high, and Mexico is seeing between 8.7% and 9.2%, a 20-year high. This could be a problem as we transition into 2023.
The civilian death count in Ukraine has exceeded 5,600 since the start of Russia’s invasion. The invasion of Ukraine has caused considerable damage. Many ports, rail/bus stations, and airports have been closed or destroyed, and numerous private and public buildings, roads, and bridges have been destroyed.
Look for transportation/ocean and domestic freight costs to increase significantly in the next 3 months.
4th Q of 2022 Construction Outlook for Major Countries:
Countries | 4th Q 2022 % GDP Growth | 4th Q 2022 Inflation % | 4th Q 2022 Unemployment % | Comments on Construction in 4th Q of 2022 Future Spending Activity |
USA | 1.3 – 1.7 | 8.4% to 9.4% | 3.8 | It appears the USA will face lower growth and higher inflation in the next 3 to 9 months and possibly longer. Energy, oil, natural gas, and diesel costs have increased substantially, which will result in a slow downed and delayed commencement of some capital projects. The US housing construction market, a huge employer of construction-related professionals and workers, is forecast to slow down significantly as the US Federal Reserve increases lending rates to combat inflation. |
CANADA | 2.9 – 3.3 | 7.5 – 7.8 | 5.5 | Increased energy costs are impeding some capital construction projects from moving forward. Russia – Ukrainian hostilities & high energy prices will test the Canadian Construction industry. Look for construction-related inflation increases in the next 3 to 6 months/escalation rates and construction material pricing spikes/shortages. Continuing higher oil prices will positively impact Canada’s Alberta oil patch. |
BRAZIL | 1.9 – 2.2 | 8.8 – 9.1 | 9.6 | The ongoing skyrocketing inflation/escalation that is impacting food, energy, and commodities prices is a huge challenge to the Brazilian economy and the construction sector. Inflation/escalation inflation in Brazil is running over 9% which of course impacts construction costs. Supply chain issues/interruptions continue in causing delivery delays of key material to project locations. |
UNITED KINGDOM | 3.2 – 3.6 | 9.9 – 10.2 | 3.7 | The UK pound to a record low against the US dollar on 9/26/2022 on growing worries on the subject of the stability of the UK economy, this could further increase inflation, oil & many imported items are priced in US dollars. The UK pound has fallen by 8.5% to 11%against the US dollar in the last 9 weeks. Energy, oil, natural gas, and diesel cost increases have curtailed and delayed the commencement of some capital projects in the UK in the last couple of months. Inflation is close to 10% and could go higher if oil/petroleum prices continue to increase. BREXIT terms & conditions remain a continuing problem. |
GERMANY | 0.9 – 1.1 | 7.9 – 8.1 | 3.2 | The recent major damage/leaks and disruption of the Nord Stream gas pipeline is especially concerning to Germany’s industry and construction sector. Was this a pipeline defect or sabotage? Increased energy costs and natural gas shortages from Russia is the # 1 issue facing the German economy and construction sector. |
FRANCE | 1.9 – 2.6 | 5.5 – 5.9 | 7.5 – 7.7 | Energy, oil, natural gas, and diesel cost increases have caused a slowdown and delayed the commencement of some capital projects Ongoing Russia – Ukrainian confrontation has caused serious problems for the French Economy & Construction sector, with spiking inflation/escalation rates and construction material pricing increases/shortages. |
RUSSIA | minus 1.3 – 1.9 | 13.9 – 14.6 | 4.1 | A long-drawn-out Russian offensive on Ukraine has had serious economic consequences The Russian Ruble is currently the world’s strongest performing currency. The Russian Ruble has been resuscitated by enhanced crude oil exports to both China and India. The Russia – Ukrainian war will negatively impact the Russian Construction sector and could cripple the industry, sanctions, the closure of export markets, skyrocketing inflation/escalation rates, and construction material pricing spikes/shortages will be in place for possibly many months. |
JAPAN | 1.4 – 1.9 | 2.4 – 2.9 | 2.4 – 2.8 | Japan’s construction industry, for the sixth year, continues to experience slow or minimal growth in its civil/infrastructure, home building, commercial, institutional, and industrial sectors, perhaps mirroring Japan’s steadily declining population. |
CHINA | 3.3 – 3.6 | 2.2 – 2.7 | 2.5 – 2.8 | China is beset by some stark economic and construction-related challenges as we transition into 2023. Millions of Chinese citizens in more than 40 cities/regions have been instructed to remain at home under partial or full COVID lockdowns. China’s construction industry is experiencing a rapid slowdown from just 6 months ago, a slower growth rate appears to be the norm as we move into 2023. The halcyon days of record-breaking construction growth appear to be over. Just how many highways, bridges, and high-speed rail projects can be financed and built? Look for China to expand its overseas infrastructure financing/loans and construction presence and activities in Asia, Africa, and South America. |
INDIA | 5.9 – 6.9 | 6.9 – 7.3 | 7.9 – 8.6 | India’s construction industry continues to experience continuing growth. India has a considerable need for new civil engineering/highways, bridges, and other transport and power-related projects in the next 3 to 18 months. |
4th Q 2022 Prices at a Glance:
- Forecast Cost of a barrel of Crude Oil $95 – $115
- Forecast of Euro / US $ Exchange Rate 0.95 – 1.00
- Forecast of UK Pound / US $ Exchange Rate $1.00 – $1.10
- Forecast of Copper per pound $3.50 – $3.75
- Forecast of Gold per Ounce $1,670 – $1,775
- US Construction Material Inflation (Basket of 10 construction materials) 4.9% – 9.9%
Compass International is considered by many to be the global leader in providing construction cost data. We partner with many of our clients to train their staff on Conceptual & Detailed Estimating methods, Validate Estimates, and turnaround problem CAPEX projects.
Executive Summary:
The US Construction sector is performing reasonably well at this time, despite global turbulence. However, with inflation remaining high at + 7% and fuel/energy and household goods increasing, plus an impending recession a month or two away, the 1st Q of 2023 does not look good for the US construction sector.
Unfortunately, US oil reserves continue to fall, and the ongoing war continues in Ukraine.
Increasing borrowing/interest rates is a direct challenge to the US construction sector, especially the home building/housing sector.
It’s not all bad news; construction-related inflation is projected to decline to pre-COVID levels as energy/oil and consumer prices even out.
Construction of Fulfillment Centers, EV Battery Facilities, Computer Chip Manufacturing, Logistics/Warehouses, and Data Centers will continue to be an area of construction growth due to the continued need for at least the next 2 to 3 years.
US 2023 Construction inflation is forecast to range between 4.75% and 6.25%, an average of 5.50%.
In the USA, the construction unemployment rate is in the 5.7% and 6.9% range.
US Construction labor challenges continue, and there is a shortage of skilled construction workers such as electricians, welders, pipefitters, and millwrights. Baby boomers (individuals reaching 55 years) are retiring at record numbers, and school leavers/young workers are not entering the construction industry in the numbers needed to sustain a growing construction sector. These younger workers are attracted to other industries, such as IT. Other industry sectors look more attractive and less demanding to these individuals.
Many US high-tech/social media companies are downsizing. This could impact future construction activity.
The global real GDP growth forecast is trending lower. 2023 is expected to grow slowly by 2.4% to 2.8%. Extreme inflationary difficulties seem to have intimidated many Owner/Operating companies. Many of these companies have delayed future CAPEX capital investments for the next 6 to 12 months.
Inflation remains elevated in just about all countries. This could be a serious problem for the construction sector in 2023. Increased construction labor/material costs and shortages of key construction materials remain a problem. Construction materials supply chain issues cause price spikes, shortages, and delivery delays.
For the best part of 18 months, the global construction industry has faced the following challenges:
- Sky-high inflation, most countries are facing this predicament.
- Supply chain issues/interruptions, causing delivery delays. (China is still imposing COVID lockdowns).
- The shortage of skilled construction labor and sub-contractors.
- High oil and gas prices (gasoline/petrol and diesel costs have just about doubled in the last 6 months).
- Construction material cost increases and shortages.
- The ongoing Russia – Ukraine conflict.
- Asia possible flash points South China Sea – China – Taiwan, North Korea, and the continuing India / China border dispute.
The vast majority of construction bulk materials, such as timber/plywood and OSB, steel products (rebar and structural steel), copper products, roofing, cement, concrete, plumbing, and electrical components have started to decline from their high prices experienced back in the 1st and 2nd Q of 2022, some of these bulk construction materials have declined by as much as 25%. Unfortunately, most construction bulk materials, and to some extent, construction-related equipment, such as HVAC components, pumps, and electrical devices, are still 5% to 15% or more expensive than 12 months ago.
The US Federal Reserve has started to vigorously increase interest rates to combat the + 8% inflation rate. This will impact the US home builders/commercial construction sector and cause a contraction of the US construction sector.
The civilian death count in Ukraine has exceeded 6,800 since the start of Russia’s invasion. The invasion of Ukraine has caused considerable damage, many ports, rail/bus stations, and airports have been closed or destroyed, and numerous private and public buildings, roads, and bridges have been destroyed.
Look for transportation/ocean and domestic freight costs to stabilize in the next 6 months.
1st Q of 2023 Construction Outlook for Major Countries:
Countries | 1st Q 2023 % GDP Growth | 1st Q 2023 Inflation % | 1st Q 2023 Unemployment % | Comments on Construction in 1st Q of 2023 Future Spending Activity |
USA | 1.7 – 2.2 | 7.4% to 8.4% | 3.8 | It appears the USA will face lower growth and higher inflation in the next 3 to 9 months and possibly longer. Energy, oil, natural gas, and diesel costs have intensified substantially, this will result in a slow down and delay in the commencement of some CAPEX capital projects. The US housing construction market is a huge employer of construction-related professionals and workers. This sector is forecast to slow down significantly as the US Federal Reserve increases lending/mortgage rates to combat high inflation rates. |
CANADA | 2.9 – 3.3 | 6.5 – 7.2 | 5.2 | Look for construction-related inflation increases in the next 3 to 6 months/escalation rates and construction material pricing spikes/shortages. Ongoing higher oil prices will positively impact Canada’s Alberta oil patch. Increased energy costs are impeding some CAPEX capital construction projects from moving forward. Russia – Ukrainian hostilities and high energy prices will test the Canadian Economy and Construction industry. |
BRAZIL | 2.4 – 3.2 | 5.8 – 7.1 | 8.6 | Brazil is experiencing political issues that could negate the recent general election. Supply chain issues/interruptions continue causing delivery delays of critical materials to project locations. The ongoing skyrocketing inflation/escalation that impacts food, energy, and commodities prices is a huge challenge to the Brazilian economy and construction sector. Inflation/escalation inflation in Brazil is running over 6.8%, which of course, impacts construction costs. |
UNITED KINGDOM | 3.0 – 3.3 | 9.9 – 11.2 | 3.7 | Inflation is close to 11% and could go higher if energy, oil/petroleum prices continue to increase. The UK pound is at a record low against the US dollar on 9/26/2022 on growing worries on the subject of the stability of the UK economy. This could increase inflation, as oil and many imported items are priced in US dollars. The UK pound has fallen by 8.5% to 11%against the US dollar in the last 6 months. Energy, oil, natural gas, and diesel cost increases have curtailed and delayed the commencement of some capital projects in the UK in the last couple of months. BREXIT terms and conditions remain a continuing problem. |
GERMANY | 0.9 – 1.3 | 9.9 – 10.1 | 3.2 | Germany is facing some serious challenges related to the importation of Russian gas. The German chemical industry is overly dependent on Russian gas supplies. The jury is still out on how this will culminate in the next 6 months Increased energy costs and natural gas shortages from Russia are the # 1 issue facing the German economy and construction sector. The recent major damage/leaks and disruption of the Nord Stream gas pipeline are especially concerning to Germany’s industry and construction sector. Was this a pipeline defect or sabotage? |
FRANCE | 0.9 – 1.3 | 5.9 – 6.3 | 7.0 – 7.3 | The ongoing Russia – Ukrainian confrontation has caused severe problems for the French Economy and Construction sector, with spiking inflation/escalation rates and construction material pricing increases/shortages. Energy, oil, natural gas, and diesel cost increases have caused a slowdown and delayed the commencement of some CAPEX capital projects |
RUSSIA | minus 0.3 – 1.4 | 11.9 – 12.6 | 4.1 | The Russia – Ukrainian war will negatively impact the Russian Construction sector and could cripple the industry, sanctions, closure of export markets, skyrocketing inflation/escalation rates and construction material pricing spikes/shortages will be in place for possibly many months. A long-drawn-out Russian offensive in Ukraine has had severe economic consequences on Russia and its neighbors. The Russian Ruble is currently the world’s strongest-performing currency. The Russian Ruble has been resuscitated by enhanced crude oil exports to China and India. |
JAPAN | 1.4 – 1.8 | 2.9 – 3.9 | 2.4 – 2.7 | Japan’s construction industry for the sixth year continues to experience sluggish or minimal growth in its civil/infrastructure, home building, commercial, institutional and industrial sectors, perhaps mirroring Japan’s steadily declining population. |
CHINA | 3.2 – 3.6 | 2.2 – 2.4 | 5.5 – 5.8 | COVID has impacted China with mass lockdowns, strong contact tracing programs, and a ban on international travel. The Chinese government has recently announced it is rolling back its “zero-COVID” policy, however, it may be too late for many Chinese citizens. The latest projections are that China could see more than 1 million related COVID deaths in the coming months. China is beset by some stark economic and construction-related challenges as we transition into 2023. China’s construction industry is experiencing a rapid slowdown from just 6 months ago. A slower growth rate appears to be the norm as we move into 2023. The halcyon days of record-breaking construction growth appear to be over. Just how many highways, bridges, and high-speed rail projects can be financed and built? |
INDIA | 5.9 – 6.9 | 6.4 – 7.1 | 7.9 – 8.3 | India’s construction industry continues to experience ongoing growth. India has a considerable need for new civil engineering/highways, bridges, and other transport and power-related projects in the next 6 to 18 months. Many of China’s electronic/cell phone manufacturing factories have been closed for lengthy periods, allowing India the opportunity to take over this critical manufacturing business. |
1st Q 2023 Prices at a Glance:
- Forecast Cost of a barrel of Crude Oil $85 – $95
- Forecast of Euro / US $ Exchange Rate 0.95 – 1.00
- Forecast of UK Pound / US $ Exchange Rate $1.05 – $1.20
- Forecast of Copper per pound $3.75 – $3.85
- Forecast of Gold per Ounce $1,700 – $1,800
- US Construction Material Inflation (Basket of 10 construction materials) 4.7% – 8.5%
