ASIA (Asian counties are projected to see 4.6% to 5.4% GDP growth in 2020)
Asian economies & their construction sectors in India, China, Malaysia, Indonesia, Singapore, Philippines Vietnam & Bangladesh are performing much better than the rest of the world. These countries & other South East Asian countries are booming & appear to be on a sustained growth cycle for the next two to three years. The GDP forecast for these countries ranges between 5% & 6.5%, there will continue to be numerous construction bidding opportunities in 2020 & beyond on new infrastructure projects, such as roads, bridges, sea ports and power facilities.
China’s economy and construction sector will slow down further in 2020, as the Chinese Government efforts to provide economic stimulus weakens.
China’s engineering & construction sector is starting to see a slowdown from the growth period experienced seen three or four years back. China in 2020 will be focusing on assisting its less developed rural provinces such as Gansu, Qinghai & Xinjiang. Look for a gradual slowdown of highways, airports, rail links & a greater push on low cost housing, schools & regional hospitals in these western provinces. The Hong Kong Government has delayed an unpopular extradition law. The current standoff between police & demonstrators is Hong Kong’s most severe political crisis in 20 years continues.
The thrilling last five years of China’s GDP growth in the 7% or more are gone, look for future growth to be in the 4% to 6% range going into 2020. China’s construction industry is projected to slow down rather dramatically in the next 2 to 3 years. The Chinese construction sector is set to slow down significantly in 2020, a major collapse in new housing starts will be a drag on the Chinese construction sector, and there is also a large amount of empty office facilities that need to find renters that will stymie new commercial construction in 2020 and beyond.
China’s construction sector will continue to experience much slower growth in the 1st Q of 2020 than the past twelve months. There continues to be an oversupply of housing units causing resale prices to fall. The Chinese Government has some difficult challenges in their hands with the unrest in Hong Kong, the problems with the Muslim Uighurs in the western region of China and the consequences of trade war with the US.
Some economists question the projected GDP growth numbers that are published for China, the thinking is that the latest 6.0% growth overstated and the real number is somewhere in the range of 4% to 4.5% (still reasonably high but somewhat troubling in that it is on a downward trend). However the Chinese EPC industry will execute slightly more than 20% of the global construction market in 2020, it is still a powerful industry that has huge global construction aspirations. Chinese EPC companies are forecast to garner more than 40% of all major international Oil / Gas and Infrastructure EPC projects in 2020 up dramatically from 15% only five years back. Chinese EPC companies continue to win the majority of major Infrastructure projects (rail, highways, seaports and the like in Africa and South America).
In the last decade or so, many domestic Chinese power and industrial plants have been constructed at costs 20% to 40% less than other comparable international power and industrial plants. Many believe that these facilities are being supported financially by Chinese Government agencies, other issues are that they are not built to international standards and there is significantly less “red tape” with the permitting issues in China than in other countries. The reduction cited above is not so pronounced when Chinese EPC companies construct related facilities outside of China. It is also worth mentioning that Chinese construction costs have been increasing between 5% and 10% in the last 3 to 5 years, this is especially true in the eastern coastal provinces of China.
Continuing industrialization coupled with a growing population are the main drivers fueling growth in China. China is striving to re-calibrate its’ economy to be more domestic & environmentally sustainable model. Chinese bulk & engineered material prices are flat or increasing by only 1% to 2% per year, labor costs are a different matter, and wage rates for Construction Professionals & Skilled & Unskilled Workers are increasing between 5% & 10% per year in some of the major coastal cities. China’s engineering & construction (EPC) sector will continue to grow in the next two to three years, however the pace of growth will be more subdued than the previous five years.
China’s inflation rate is forecast to be 3.4% to 3.9% in 1st Q of 2020. China’s overall industry unemployment rate in 2020 is forecast to be 2.4% to 2.7%, the construction industry is higher ranging between 5.1% & 5.5%.
The Chinese economy is very reliant on exports, 15% to 20% of its exports go to the US. China sold $500 + billion in goods & services to the US in 2018, the US sold $135 billion in goods & services to China, a trade gap of $375 billion. China’s Government has recently decided to confront three major domestic problems in the next five years, (1) reduce poverty, (2) reduce pollution & (3) reduce domestic debt. The continuing possibility of a trade war between the US & China & is a distinct possibility with the US continuing to ratchet up its rhetoric on this issue & the Chinese responding in a similar way on this topic.
Chinese EPC firms aggressively chase international construction work especially in Africa, Asia & North & South America. The Chinese private property market is still overvalued by at least 25% to 35% according to industry experts; this has impacted the spending habits of the Chinese consumer & will have a knock-on effect for the Chinese construction sector in 2020.
It is estimated that each year more than 10 million rural based individuals from mainly the western regions are migrating to China’s major cities, these individuals are looking for higher paying jobs, look for this situation to continue for at least the next five years. This will continue to put a strain on the support services of these major cities. China’s economy appears to be slowing down & the potential trade war with the US looks to be improving with the recent Phase 1 agreement.
India is forecast to become the third or fourth largest construction market in the next five years. India’s population is forecast to increase by 75 to 100 million in the next five years.
India’s construction growth potential going into 2020 is immense over the next five years and beyond. The only thing holding back greater economic growth is government / political ineffectiveness and “red tape” that is endemic in India. The Indian construction sector continues to experience solid growth as we move into 2020, a number of large Infrastructure (roads, bridges, airports and seaports) and Industrial projects have recently been announced. The cost of these projects is in excess of US $50 billion to be spent in the next three years India’s industrial development and the increase in salaries and wages, together with a growing population will set the stage for future construction growth in the next decade.
Infrastructure sector is a key driver for the Indian economy, highly responsible for propelling overall development. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.
Due to industrialization, urbanization, rising disposable incomes and population growth, the demand for construction services is set to rise. Government efforts to improve the countries residential and transport infrastructure will also support growth.
India’s construction sector is forecast to see steady / continuing growth in 2020. India’s inflation rate is forecast to be 3.9% to 4.8% in the 1st Q of 2020. India’s GDP continues to be robust at 5.4% to 5.7% going into the 1st Q of 2020. India’s overall industry unemployment rate in 2020 is forecast to be 7.4% to 7.8%, the construction industry unemployment rate is to some degree higher, ranging between 8.5% & 9.5%.
The Indian engineering & construction industry is going to double in size by 2025. India is now the new China, numerous US / European & Japanese manufacturing companies are focusing on India to establish manufacturing facilities in India, look for this trend to continue for the next 5 years at least. Foreign investment is pouring into India as major US, European & Japanese companies recognize India as a future major growth country, look for this trend to continue in 2020 & beyond.
A rapid expansion of India’s major cities & towns in the next five to ten years is forecast to significantly increase the population of these area. This will create huge opportunities for Indian Contractors, Architects, Engineers, EPC / CM firms to complete new & existing roads, housing, railways, ports, schools & a host of other facilities that will be needed to support this unprecedented growth. The question is: does India have the necessary Contractors, Architects, Engineers, EPC / CM firms to complete this task? At this time, it is questionable that this effort can be achieved, with India only have one really major EPC company.
India will be the frontrunner of the “Asian Tiger” economies. Infrastructure accounts for between 50% & 70% of India’s construction sector, this will possibly increase due to the Indian Governments recent proclamation to invest & improve highways, electrical transmission systems, railways & other forms of transport. Indian Engineering & Construction worker wage rates have increased between 5% & 10% in 2019, look for this trend to continue in 2020.
India’s construction sector employs more than 30 million construction professionals & construction workers, it ranks as one of the major industries employing millions of individuals similar to the Indian Railway. The Indian construction industry continues to expand, this growth is sustained by India’s evolving economy, consumer spending, foreign direct investments (FDI) & higher government spending on large & mid-sized infrastructure projects. Construction industry growth is expected to remain strong over the next three to five years, as a result of the government’s undertaking to augment India’s dilapidated infrastructure.
The Olympic Games, to be hosted by Japan in 2020, are expected to be a key driver of the industry’s expansion over the forecast period. In December 2016, the government initiated the construction of the huge national stadium in Tokyo for the 2020 Olympic Games. With an estimated investment of JPY160.5 billion (US$1.5 billion), the new stadium is being built to accommodate over 80,000 spectators.
Japanese construction activity is mainly focused on new hotels, shopping centers, housing & the 2020 Olympic facilities. Japan’s recently announced Government stimulus policy has not appeared to work. Japan’s GDP is forecast to grow in the below par 1.1% to 1.4% range in 2020. Japanese unemployment rate is forecast to be 2.5% for the next six months, Japanese inflation is forecast to be in the 0.3% in the 1st Q of 2020. Japan is perhaps the engineering & construction leader on foundations, building & infrastructure construction design, methods & practices to minimize earthquakes & tsunami events, which seem to occur on a regular basis in Japan. Japan will host the 2020 Olympics, the forecast of funds to be spent on new stadiums, highways & other infrastructure facilities is forecast to be in the $4 to $6 billion range in the next year.
The Indonesian Government has unveiled a five year plans for a major expansion of the counties highway system. There are plans in the pipeline to establish a new capital city in the next three to five years that could eventually cost more than US$20 billion. The Indonesian construction sector is performing exceptionally well in & around the Jakarta region, GDP is forecast to grow in the 4.9% to 5.4% in the 1st Q of 2020, inflation is starting to move up and is forecast to be between 2.9% & 3.7%, Indonesian unemployment is forecast to be 5% at the end of 2020.
South Korea’s 2020 GDP is forecast to see 1.9% to 2.2% growth, inflation will be in the 0.3% to 0.5% range & unemployment is forecast to be 2.9% to 3.3% in the 1st Q of 2020. The South Korean construction sector is experiencing moderate growth. Consumer confidence, business investment in manufacturing facilities, Government funding of infrastructure projects & a belief that the North Korean threat will be eventually be resolved. The current spat between the US and the South Korean Government regarding additional for the reimbursement of providing US military forces to be stationed in South Korea is concerning.
China & South Korea’s share of global construction will continue to grow in the next two or three years as these two countries EPC firms continue to aggressively pursue Infrastructure, Energy, Oil & Gas projects around the world.
Vietnam & Singapore are both expected to see decent GDP growth in the 5.5% to 6.5% range in the 1st Q of 2020. Malaysia’s construction sector will continue to thrive in 2020, some large office buildings, shopping malls, hotels, roads, oil & gas facilities together with rail facilities are driving this growth.
Construction activity in 2020 is expected to be strong in some of the emerging markets such as Bangladesh, the Philippines, Thailand, Cambodia & Laos.