Choose Your Region
Executive Summary
What a difference 3 months makes!!!
The world economy & construction sector is in its most unstable place since the Great Depression of the 1930’s. International growth has been slowing down for the past 18 months, COVID-19 has slammed on the brakes of future growth for at least the next year or two.
The COVID-19 virus has been responsible for anywhere from 30% to 60% of ongoing construction projects around the world to be closed down since mid-March. We are starting to see some construction work slowly starting up again at somewhat of a reduced level as of early June. The vast majority of Global Capital Construction projects will experience material & labor cost increases, delayed completions & potential claims from Engineering firms & Contractors due to work stoppages / suspensions, unobtainable / long lead materials & equipment scarcities, low productivity & other difficulties related to the (COVID-19) crisis.
The global economy and construction sector are at this time going through a dangerous period. Most of the world’s economies are struggling with the effects of COVID-19. Nevertheless we do expect a gradual & steady economic upturn as we transition into the 2nd half of 2020.
Construction has been hit hard in the last 2 months. Millions of people have been laid off or are about to be unemployed as we move into the 2nd half of 2020.The majority of countries will experience a daunting year economically & construction-wise as they all struggle to get past COVID-19.
2020 Global GDP growth pre-Covid-19 was forecast to be 2.7% – 3.1%, post COVID-19 look for this projection to drop to 0.4% – 0.9% – a major decline. Many industry experts are forecasting that COVID-19 will have lasting implications for various facets of the Global construction industry.
US construction unemployment is set to hit 20% in June, up from 4.5% only two months back.
The bottom line is that construction costs in the 2nd half of 2020 will increase, worker productivity will decline, some bulk material costs will rise, additional direct construction man-hours & field in-directs man-hours will be needed to complete construction projects. Social distancing, new safety procedures, the wearing of gloves / masks & the required cleaning routines will be bring about this cost increase.
Construction projects will take longer to accomplish, a 12 month typical construction schedule will take anywhere from 14 to 17 months to complete post COVID-19.
COVID-19 has substantially impacted the Global Construction supply chains, the vast majority of Chinese construction suppliers did not fabricate products & components in February & March. China supplies between 20% and 30% of construction materials & components for the US & European construction markets.
The oil price struggle between Russia & Saudi Arabia & the economic downturn in China caused by COVID-19 will result in many Oil & Gas / Energy CAPEX projects being cancelled or delayed. Oil prices have fallen by as much as 30% in the last month or two.
Look for contractors to issue claims for extended general conditions / preliminaries, loss of productivity & delay costs. Banks & lenders appear to be skittish on future construction related borrowing. Infrastructure, Residential & Commercial Construction sectors are forecast to see a significant slowdown if this pandemic continues past June & July. Travel constraints / restrictions & quarantines could impact some specific locations & remote construction projects. In North America, infection rates will start to decline in late May and start to lessen in July & August, however it is possible that COVID-19 could rebound towards the end of the year.
The main concerns for Global Construction industry going into the 2nd half of 2020 are:
- The possibility of a prolonged Global Recession.
- A persistent lack of consumer confidence that could last for more than a year or two.
- The interruption of the Global construction materials / equipment supply chain.
- The loss of construction worker productivity related to social distancing, new safety rules & the need for personal protection.
- Lack of future CAPEX funding & investment.
Russian, European and American Oil / Gas (Owners & Operating companies) are expected to slash their 2020 CAPEX expenditure by as much as 50% or more, this is damaging news for the International Engineering, Procurement & Construction sectors. Thousands of construction professionals could be laid off in the next couple of weeks or months, add this situation to the Coronavirus Pandemic and you have an economic event(s) that looks like a “Perfect Storm.”
The chart below indicated the regional market share for the year 2020, these values unfortunately are anticipated to contract by as much as 10% to 20% due to the COVID-19. We have indicated projected pre-pandemic & post-pandemic values. These values take into account both government / public works and private construction expenditures. We are forecasting a value of $7.25 Trillion as can be seen in the table below, a decline of 14%.
| # | Region | 2020 Value in Trillions $’s (Pre- Pandemic) | 2020 Value in Trillions $’s (Post Pandemic Forecast) |
|---|---|---|---|
| 1 | North America (USA / Canada / Mexico) | 2.17 | 1.95 |
| 2 | South America | 0.66 | 0.56 |
| 3 | Western Europe | 1.73 | 1.51 |
| 4 | Eastern Europe | 0.56 | 0.48 |
| 5 | Middle East | 0.67 | 0.57 |
| 6 | Africa | 0.28 | 0.24 |
| 7 | Asia / Australia (China / India / Japan / Australia / New Zeal& / Other S.E. Countries) | 2.18 | 1.94 |
| Total | 8.25 | 7.25 |
Current world political & economic risks & issues include:
- The worldwide economic impact of the COVID-19 still needs to fully play out before realistic projections can be made.
- The race is on to develop a vaccine to protect against the COVID-19, unfortunately this could take up to 12 months. There is talk of two or more approved drugs that have shown some positive results in small trials.
- 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 that we are enter a new Cold War between the US and China.
- North Korea continues to be a wild card, with the test-firing short range missiles and testing rocket systems, this could be a major problem in 2nd Q 2020.
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. However, the current global war on the COVID-19 needs to be won before this can be realized.
COVID-19 is the latest challenge the Global Construction industry is faced with, hopefully this problem will be resolved in the next 3 to 6 months with the introduction of a new vaccination.
| Countries | 2nd Half 2020 % GDP Growth | 2nd Half 2020 Inflation % | 2nd Half 2020 Unemployment % | Comments on Construction in 2nd Half of 2020 Future Spending Activity |
|---|---|---|---|---|
| USA | Zero to 0.5 | 0.5 – 1.3 | 12.5 – 17.5 | The 2nd half of 2020 will be very challenging as the US construction sector tries to catch its’ breath. The full scale of the economic impact to the US of COVID-19 is still to be calculated. COVID-19 has the potential for all US future or current construction projects to be delayed or the worst case cancelled. Look for construction unemployment to skyrocket to more than 20% in the next month or two. |
| CANADA | Zero to 0.5 | 0.5 – 1.1 | 12 - 18 | The economic impact of the deadly COVID-19 is still to materialize. Unfortunately, the COVID-19 virus has the potential for all Canadian future or ongoing construction projects to be delayed or the worst case called off. Look for construction unemployment to rise steeply in the next month or two. |
| BRAZIL | Minus 4% to Minus 5% | 3.5 – 5.5 | 13 - 20 | Brazil is now has the 3rd largest number of COVID-19 deaths. The full scale of the economic impact of the deadly COVID-19 on Brazil is still TBD. Regrettably COVID-19 has the potential for all Brazilian future or ongoing construction projects to be delayed, deferred or the worst case situation axed. Look for construction unemployment to increase rapidly in the next month or two. |
| UNITED KINGDOM | Minus 4% to Minus 6% | 1.5 – 2.5 | 5 - 10 | The UK has a high likelihood of falling into a recession later in 2020, this & the Brexit issue will take some skilled navigation to come to a good outcome. The economic impact of the COVID-19 on the UK construction sector is still to come into focus. This virus has the potential for all UK future or ongoing construction projects to be delayed or the worst case situation cancelled. Look for construction unemployment to skyrocket in the next month or two. The UK pound is showing signs of weakness going into the 2nd half of 2020. |
| GERMANY | Minus 2.5% to Minus 5% | 1.2 – 2.1 | 5 - 9 | Germany the engine of Europe has a high probability of falling into a recession later in 2020. COVID-19 has the potential for the majority of German future or ongoing construction projects to be delayed or the worst case stopped. Look for construction unemployment to increase rather rapidly in the next month or two. |
| FRANCE | Minus 3% to Minus 7% | 1.2 – 2.3 | 8 - 10 | 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 4 years. The Coronavirus Pandemic has the potential for all French future or ongoing construction projects to be delayed or the worst case shelved. Look for construction unemployment to increase rather rapidly in the next month or two. |
| RUSSIA | Minus 3% to Minus 6% | 3.5 – 5.5 | 10- 15 | A severe fall in the Russian Ruble after the dramatic oil price drop is still TBD. The ramifications of the global economic impact of the deadly COVID-19 is still to emerge in Russia. The virus has the potential for all Russian future or ongoing construction projects to be delayed or the worst case postponed. Look for construction unemployment to increase rather quickly in the next month or two. |
| JAPAN | Minus 1.5% to Minus 2.5% | 0.5 – 0.7 | 2.5 – 3.5 | The 2020 Olympic games have been cancelled until 2021 The full scale of the global economic impact of the deadly Coronavirus Pandemic on Japanese construction is still to emerge. Unfortunately the Coronavirus Pandemic has the potential for all Japanese future or ongoing construction projects to be delayed or the worst case cancelled. Construction unemployment to set to increase rather briskly in the next month or two. |
| CHINA | 1.0 to 2.0 | 3.5 – 5.5 | 5 - 7 | The Chinese economy & construction sector will experience an unprecedented slowdown in 2nd & 3rd Q of 2020. The ramifications of the global economic impact of the deadly Coronavirus Pandemic is still TBD. The Coronavirus Pandemic has the potential for all Chinese future or ongoing construction projects to be delayed or the worst case suspended. Look for construction unemployment to increase rather rapidly in the next month or two. Construction activity is starting up rather strongly in most regions. |
| INDIA | 0.5 – 1.5 | 4 – 6 | 15 - 20 | Many Indian planned or ongoing construction projects need to be re-evaluated, delayed or in the most unpleasant case rescinded. Look for construction unemployment to increase rather rapidly in the next month or two. Prime Minister Narendra Modi has earmarked a $2 billion fund to mitigate the effects of the Coronavirus Pandemic on the Indian population & industry. |
2nd half 2020 Prices at a Glance:
- Forecast Cost of a barrel of Crude Oil $28 – $37
- Forecast of Euro / US $ Exchange Rate 1.07 – 1.12
- Forecast of UK Pound / US $ Exchange Rate $1.18 – 1.26
- Forecast of Copper per pound $2.15 – $2.45
- Forecast of Aluminum per pound $0.70 – $0.80
- Forecast of Gold per Ounce $1,600 – $1,750
- US Construction Material Inflation (Basket of 10 construction materials) 0.5% – 1.5%
Compass International is the leader in providing International Construction Cost Intelligence:
Eliminate the risk of cost overruns with Compass International’s researched and current US & International construction cost data.
Compass International is considered by many to 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 to Turnaround problem CAPEX projects.
Compass International’s staff of Estimators, Cost Engineers and Planners spend thousands of hours on construction cost research to develop our (8) construction cost databases. In addition, we have a network of Construction Professionals / Consultants / Estimator located in more than 20 countries providing us with real time cost data. All of our data is supplemented with feedback from Project Control Professionals, Estimators, Q.S.’s, Architects, Engineers and Construction Managers around the world. This comprehensive research supports us in validating our construction cost data library. Our updated construction cost data will assist you in your estimating efforts, removing any concern of future construction cost overruns.
Compass International Consulting Services, we provides:Estimate Validation Services / Reviews of FEED Studies, AFE Budgets & Detailed Estimates for Owners that can save millions of CAPEX dollars. We also provide Independent Estimates / Check Estimates:
- Benchmarking Services
- Global Market Surveys / Global Construction Cost Studies
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To contact the Author of this newsletter or to enquire about our Cost Saving services, contact John G. McConville CCP – in USA call (609) 577 4505 or contact me at sales@compassinternational.net
