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Encouraging, daunting, buoyant, depressed, upbeat and challenging are some of the words tossed around to describe the construction outlook in many countries around the world as we move into 2019; the positive words for the most part, apply to India, Vietnam, China and the US…….. the negative words pertain to the UK, France, Italy, Germany, Japan, Brazil and Russia. Certain Global Construction markets are perhaps not as positive looking as they were in the last two years, we have concluded that we are entering a slowdown period, however 2019 will be for the most part be year of marginal growth.
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 are 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 1st Q of 2019 and 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 and significantly reduce future GDP growth and lead to a substantial increase in China’s unemployment rate. The current escalation of trade disagreements between China and the US doesn’t benefit either country’s interests, the world’s #1 and #2 economies have both been in a war of words over trade in the last twelve months, ratcheting up the stakes each month. Hopefully this major disruption to future global trade can be resolved in early 2019. Assuming the China / US trade dispute is resolved in early 2019, then the US could ratchet up its trade sanctions threats on the European Union (EU) in 2019, the German automobile industry could be the be the big loser of this situation, then again the (EU) could impose its own trade sanctions against the US.
Assuming that these trade disputes can be resolved, then the global construction market could continue to experience nominal growth in the 1st Q of 2019 and beyond in most countries around the world. The global economy is forecast to expand by 2.7% in 2019 compared to 2018, this bodes well for construction related activity in 2019 and beyond, however there are recent signs that 2019 might not be as good as 2018. The majority of the world’s economies are experiencing positive, if somewhat moderate growth as we move into the 1st Q of 2019 and beyond. The International Engineering, Procurement and Construction (EPC) market is estimated to grow to $7.60 trillion by the end of 2019, up from $7.40 trillion in 2018. 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 by 2027, a 35% increase.
| # | Region | 2018 Value in Trillions $’s |
|---|---|---|
| 1 | North America (USA / Canada / Mexico) | 2.02 |
| 2 | South America | 0.63 |
| 3 | Western Europe | 1.62 |
| 4 | Eastern Europe | 0.53 |
| 5 | Middle East | 0.63 |
| 6 | Africa | 0.22 |
| 7 | Asia / Australia (China / India / Japan / Australia / New Zealand / Other S.E. Countries) | 1.95 |
| Total | 7.6 |
- Bangladesh 7.6%
- India 7.2%
- Vietnam 6.5%
- China 6.2%
- Philippines 6.1%
The US construction sector is performing extremely well as we move into 2019. Growth is (for the most part) occurring across most US industrial sectors, look for this positive trend to slow down in the 4th Q of 2019.
Major counties that will experience slow growth of less than 2% GDP Growth in the next (6) months include Japan, UK, Italy, Germany and France, which perhaps heralds slower overall global construction growth in 2019.
From the above list it appears that the best construction related markets for growth in 2019 are located in Asia and the US, these countries will continue to be the fastest growing construction markets in 2019. Increasing demand for all types of construction services in the US and the Asia – Pacific Region (APAC) will compensate for slower growth in Europe, Russia and South America over the next year or two.
In November, the US, Mexico, and Canada endorsed a new trade accord, titled the US-Mexico-Canada Agreement (USMCA). This new trade arrangement will transfer some automobiles and components produced in Mexico to the US and open up dairy products from the US into Canada. USMCA also opens the way for the US to remove 25% steel and 10% Aluminum import tariffs it placed on Canada in 2018.
Current world political issues that could impact the above somewhat positive comments are:- The possibility of an all-out trade war between China, the European Union and the US is a possibility as we move into 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 likelihood of a conflict between the US and North Korea have diminished considerably 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 and Western European countries.
- The ongoing “Brexit” saga, and it possible consequence on the UK the remaining 27 European Union economies.
- 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 and political instability.
- Uncertainty of future oil prices, what will a barrel oil will cost in the next six months, will it be $45 or $85 a barrel? Oil prices have been moving downwards we have seen a drop of 25% in the last three months, the cost of a barrel of oil recently fell below $50 a barrel and gasoline is below $1.95 a gallon in more than 10 US States, this could stymie US Oil & Gas CAPEX activity in 2019.
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. Hurricanes Florence and Michael hit the Southeast US in September and October, the extensive flood and wind damage is estimated cost between $55 and $75 billion in construction work and will take at least 6 to 12 months for this region 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 good news is that the Global Construction market is forecast to see reasonable growth in the next two to three years. This growth will be driven by population growth, the movement of people from rural areas to cities and towns in Asia, South America and Africa. There will be significant need for low cost housing, schools, hospitals, food production facilities, power plants, potable water systems, roads, airports and the like to support this migration.
| Countries | 2018 % GDP Growth | 2018 Inflation % | 2018 Unemployment % | Comments on Construction 2018 Future Spending Activity |
|---|---|---|---|---|
| USA | 3.2 | 2.6 | 3.7 | Construction activity overall in the USA is forecast to increase by 2.5% to 3.5% in 2019 over 2018 levels. Commercial / Infrastructure construction gradually improving in all areas of the USA. The USA economy will continue to grow at an improving rate of 2.8% to 3.3% in 2019. Many experts are forecasting a construction slowdown in the 2nd half of 2019. |
| CANADA | 2.1 | 2.4 | 5.8 | Construction (hotels, offices, shopping malls, institutional work and housing) is steadily improving in all Canadian Provinces. Oil & Gas CAPEX work has started to see a slight pick-up with current oil prices in the $55 to $65 a barrel range. However oil prices have dropped below $50 a barrel in recent weeks, this could impede future Oil & Gas projects. |
| BRAZIL | 2.8 | 4.5 | 11.8 | Brazil’s new right wing President Bolsonaro has promised to bring economic stability. Things are starting to get back to normal, the economy is seeing some signs of improvement. GDP is forecast to grow at an improving rate of 2.5% to 2.9% range in 2019. |
| GREAT BRITAIN | 1.5 | 2.4 | 4.1 | The UK is set to leave the European Union in 3 months, will it happen is the question. Brexit negotiations are still in a state of flux, more than two years after the UK referendum, this economic uncertainty is expected to have a negative impact on construction activity in 2019. |
| GERMANY | 1.3 | 2.2 | 3.4 | German construction activity in 2019 is expected to slow down over 2018 levels. Future construction activity in 2019 looks to be rather bleak. The Nord Stream 2 Pipeline Project a controversial gas pipeline project from Russia to Germany has recently broken ground. |
| FRANCE | 1.4 | 1.9 | 8.8 | The recent riots by the “Yellow Vests” particularly in Paris does not portend well for future economic / construction activity in France. Construction activity will remain lethargic in 2019. |
| RUSSIA | 1.4 | 3.5 | 4.7 | The Russian construction market is forecast to experience minimal growth in the Oil / Gas sector and modest growth in the commercial / housing construction sector in 2019. USA & European sanctions related to the eastern region of the Ukraine occupation have seriously impacted the Russia economy & construction sector in last three years, look for this to continue in 2019. |
| JAPAN | 0.3 | 1.4 | 2.5 | The Japanese economy / construction sector is forecast to slow down in 2019. The Japanese construction industry continues to see slow but minimal growth. The recent meeting between President Trump and Kim Jong-un, is viewed as a positive situation for the Japanese economy / construction sectors. |
| CHINA | 6.2 | 2.5 | 3.8 | The prospects of a possible trade war between China and the US is a distinct possibility going into 2019. The Chinese economy is showing some signs of moderating. Construction salaries and wages in some of the coastal cities continue to increase in the 4% to 7% range. The recent meeting between President Trump and Kim Jong-un of North Korea, is seen as a positive situation for the Chinese economy. However the Chinese economy is showing signs of slowing down, the trade disputes between China & the US need to be resolved if both economies are to grow 2019. |
| INDIA | 7.2 | 3.9 | 6.6 | India will continue to be the leader of the Asian economies in 2019. Infrastructure & Commercial projects such as, highways, ports, railways, low cost housing, schools, hospitals, manufacturing factories, fertilizer, petro-chemical, gas facilities and power plants are moving the Indian economy forward in 2019. |
1st Half of 2019 Prices at a Glance:
Forecast Cost of a barrel of Crude Oil $52 – $64
Forecast of Euro / US $ Exchange Rate 1.05 – 1.12
Forecast of Copper per pound $2.75 – $3.25
Forecast of Aluminum per pound $0.85 – $0.95
US Construction Material Inflation (Basket of 10 construction materials) 2.4% – 2.8%
