The global construction industry faces several severe risks and challenges as we move into the 2nd half of 2022.
The global construction industry faces several severe risks and challenges as we move into the 2nd half of 2022.
The major concerns that the Global Construction industry faces are:
- Supply chain issues/interruptions that cause delivery delays. (China is starting to end its COVID lockdowns).
- High oil & gas prices (gasoline/petrol & diesel cost have just about doubled in the last 3 months).
- With sky-high inflation, most countries are facing this predicament.
- Construction material cost increases & shortages.
- The shortage of skilled construction labor.
- The ongoing Russia – Ukraine conflict.
- Asia possible flash points South China Sea – China – Taiwan & North Korea.
In just 3 months, the Global Economic and International Construction growth picture has turned negative while fighting rages in Ukraine, and high inflation/energy has increased. Unfortunately, the longer the conflict lasts, the longer we will be faced with this predicament.
2022 will continue to be a challenging year for the global construction industry, supply chain problems, sky-high inflation, material shortages, the ongoing war between Russia and Ukraine, the resurgence of COVID in some countries, and the possibility of a global recession are the major challenges as we move into the 2nd half of 2022.
Some economic experts are saying we are now in a global recession; this would increase unemployment rates and could be the event that causes many construction projects to be canceled or delayed.
We are now close to 6 months into Russia’s invasion of Ukraine, and it looks like this conflict will continue. The international sanctions that have been imposed on Russia have not brought an end to the conflict. The Russian ruble is trading at an all-time high, and Russia is still selling oil and gas to European countries and other nations.
Russia is a significant supplier/exporter of oil, natural gas, and metals. Elevated prices on essential materials/metals/commodities have started to trigger major price spikes around the world. Ukraine and Russia, because the supply is up to 35% of the world’s wheat and barley requirements and countries in the Middle East and Africa are major importers of these crops, prices have risen by more than 35%, with both Russia and Ukraine unable to export these products.
More than 6.5 million people have fled Ukraine since Russia’s invasion, over 2.5 million people have escaped to neighboring Poland, around 650,000 have looked for shelter in Romania, and approximately 400,000 have moved to Moldova.
The civilian death count in Ukraine has exceeded 3,400 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.
The Russian invasion of Ukraine has raised energy, oil, diesel, natural gas, and some commodities such as minerals/metals and wheat prices to record levels that could seriously weaken the economies of the vast majority of countries around the world, including the larger economies of the USA, Western Europe, (Germany, UK, France Italy, etc.) China, India, Japan, and South Korea.
On the other hand, perhaps a dozen or more countries such as Australia, Brazil, Canada, Nigeria, Algeria, Iraq, Mexico, Norway, Venezuela, Saudi Arabia, Iran, and some of Middle East the Gulf States (Qatar, Kuwait, UAE) are likely to experience an economic bonanza from their exports of Oil, Gas, Timber products, Wheat, metals such as Platinum, Nickel, Bauxite, Tungsten/Wolfram, Lithium, and other minerals.
The inflation/escalation spikes we have experienced in the last 3 to 6 months present major risks & challenges to the Global Economy & Construction Sectors.
North American & international construction costs continue to trend higher. Contractors/Owners feel the effects of increased construction costs related to steel, metal siding, copper (cable & piping), roofing, plumbing, drywall, timber/plywood products, process piping, valves & electrical/instrumentation devices & components.
The Global Economic outlook has turned negative while fighting rages in Ukraine. It appears that Russia is intensifying its war effort on Ukraine. How long will this war last? Will NATO or other countries get involved?
The rapid price increase of Oil & Gas products brought about by the Russian attack on Ukraine continues to be a huge problem for gasoline & diesel prices in the US, increasing to more than $5.50 a gallon.
The US inflation rate escalated to 8.6% in June over the previous year, the largest increase since 1982, 40 years ago, and many other countries are experiencing the same problem.
US oil producers are challenged and unable to ramp up oil production in the short term. Look for gasoline prices to continue to increase. Six months into this crisis, and (WTI) oil is up to $110 a barrel. Where will it be in the next twelve weeks? Nobody knows. Stay tuned.
Major Western oil companies have abandoned partnerships, joint ventures, and some ongoing CAPEX projects; this action will impact Russian oil production. The US, UK, and Canada have stopped imports of Russian oil that could amount to between 15% and 20% of Russia’s oil exports.
Surging Inflation/Escalation of construction costs will translate to increased costs & possible project delays & cancellations. Inflation has become a financial strain for just about all nations around the world. Prices are up in about every category. USA inflation in June surged at the quickest rate in 40 years, and the Russia/Ukraine crisis will compound this issue. Economists warn inflation/escalation is likely to worsen in the next 3 to 6 months. US construction costs are up by 7% to 9% in the last 12 months. The crisis could intensify this increase, and construction costs could likely increase by 10% to 15% in the coming months.
The Global Economy was just starting to recover from the COVID/OMINCON-produced crisis, and a strong job market was underway; this current Russia/Ukraine crisis will stymie that recovery. Global supply chains struggling to recover from the 2-year COVID pandemic must be prepared for the continuing shortages and delays of construction materials & associated related capital equipment. Supply chain interruptions and construction material price spikes/shortages are a big challenge forecasted to continue in the 2nd half of 2022. Supply chain interruption issues look like they will get worse over the next couple of months.
Look for transportation/ocean & domestic freight costs to increase significantly in the next 3 months.
COVID/OMICRON is still an ongoing challenge in some countries. It appears that China is starting to normal after 2 + months of COVID lockdowns.
None of us have experienced an event/crisis like this. Unfortunately, a full-blown war (WW3) between NATO and Russia could develop. Let’s hope for the best.
Other clouds on the horizon include the USA/NATO embroiled in hostilities with Russia, the China/Taiwan problem & North Korea’s continuing hostility, and recent IBM missile testing.
Let us hope this war ends as soon as possible and common sense triumphs before this crisis becomes an uncontrollable disaster.
The bottom line is that construction material costs will likely increase in the months ahead.
3rd Q of 2022 Construction Outlook for Major Countries:
|Countries||3rd Q 2022 % GDP Growth||3rd Q 2022 Inflation %||3rd Q 2022 Unemployment %||Comments on Construction in 3rd Q of 2022
Future Spending Activity
|USA||3.3 – 3.7||8.5% to 10%||3.7||The ongoing Russia – Ukrainian war will be another challenge for the US Construction industry, with rapidly increasing inflation/escalation rates and construction material pricing spikes/shortages, and increased energy costs. The impact of the new COVID-19 / OMICRON strain on the US construction sector has more or less faded away. Increasing construction materials prices is a significant issue, brought on by pent-up demand after the COVID slowdown & the ongoing war in Ukraine, and the current USA housing boom (which appears to be moderating). Oil & Gas Owners/Operating Companies are taking a second look at their 2022/2023 CAPEX budgets with the recent strong rise in oil prices. Several CAPEX-related Petrochemical, Energy & Power projects could move forward in the 3rd Q of 2022.|
|CANADA||2.8 – 3.1||7.6 – 7.8||5.4||Russia – Ukrainian hostilities & high energy prices will test the Canadian Construction industry. Rising inflation/escalation rates and construction material pricing spikes/shortages in the next 3 months look to be the norm. Continuing higher oil prices will positively impact Canada’s oil patch. New RFQs/Bidding opportunities on commercial-type projects should present themselves as we move further into the 2nd half of 2022.|
|BRAZIL||1.6 – 1.9||10.8 – 11.8||10.6||Inflation in Brazil is running at close to 12%, which impacts construction costs. The impact of the new COVID-19/OMICRON strain on the Brazilian construction sector is starting to improve. The ongoing Russia – Ukrainian war will challenge the Brazil Construction sector with skyrocketing inflation/escalation rates, construction material pricing spikes & supply chain issues/shortages. Brazil has suffered from extremely high inflation and unemployment rates for the last 7 years. 2022 will see the same situation.|
|THE UNITED KINGDOM||5.2 – 5.6||8.3 – 9.9||3.9||UK inflation is close to 10% and could go higher if petroleum prices continue to increase. Russia – Ukrainian conflict will challenge the UK construction sector with increasing inflation/escalation rates, petrol & energy prices, together with construction material pricing spikes and construction material shortages. BREXIT terms & conditions remain a problem. Once the COVID-19 pandemic is resolved, in say 3 to 6 months, the UK economy & construction sector could be set for a growth spurt if we can get beyond the problems in Ukraine.|
|GERMANY||3.2 – 3.9||7.1 – 8.1||3.1||German inflation is close to 8% and could go higher if energy/petroleum prices continue to increase. The Russia – Ukrainian war will challenge the German Economy and Construction sector with skyrocketing inflation/escalation rates, construction material pricing spikes/supply chain problems & material shortages. Russia is a major supplier of oil and gas to Germany; it seems that Germany is in a tough spot until it can solve its energy needs. Germany started to close down its coal-fired & nuclear plants more than 5 years ago. This decision has now come back to trouble the country. Germany has decided to significantly increase its defense spending since the Russian advance on Ukraine.
The German construction sector has experienced three difficult years, and the 2nd half of 2022 appears to be another problematic 6 months.
|FRANCE||3.9 – 4.6||4.9 – 5.3||7.1 – 7.5||French inflation is more than 5.5% and could go higher if energy/petroleum prices continue to increase. The ongoing Russia – Ukrainian confrontation will cause severe problems for the French Economy & Construction sector, with spiking inflation/escalation rates and construction material pricing increases/shortages. The challenges related to the COVID-19/OMICRON strain appear to be fading. France has struggled with high unemployment since 2008. The ongoing war in Ukraine is an additional challenge to the French construction sector. Engineering & Architectural firms are reporting a significant fall off of RFQs/new orders as we move into the 3rd Q of 2022. France has reportedly started to utilize its mothballed coal-fired power plants. France is a big proponent of nuclear power, however, recent technical problems have closed some of these nuclear power plants.|
|RUSSIA||3.3 – 3.6||16.9 – 17.5||4.1||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. 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.
Let us all hope this war ends as soon as possible.
|JAPAN||0.3 – 0.5||2.2 – 2.5||2.3 – 2.7||Japanese inflation is close to 2.5% (historically high for Japan) and could go higher if energy/petroleum prices continue to increase. The Russia – Ukrainian war will impact the Japanese Economy/Construction sector for at least the next six months, with sudden rising inflation rates, increased construction material shortages, and pricing spikes. Japan imports a lot of oil. Rising oil prices puts a big strain on the Japanese economy
The Japanese economy & construction sector is still underperforming.
|CHINA||4.6 – 4.9||1.9 – 2.2||5.5 – 6.1||China is slowly coming out of its self-imposed COVID lockdowns after close to 16 weeks, as many as 250 million Chinese citizens were impacted, compounding the global supply chain problem we are experiencing. China’s ports are still backed up with thousands upon thousands of ocean freight containers. It will take at least another month or two to work through this backlog problem.
The ongoing Russia – Ukrainian conflict will impact the Chinese Construction sector with increased inflation/escalation rates, construction material shortages, and price increases. China has not figured out what to do with Russia and the rest of the world (help Russia or call for an end of hostilities). China’s economic trade with Russia is minimal compared to the huge trade it has with the USA, Japan, UK, Canada, South Korea, Australia, and the 27 members of the European Union. China’s economy and construction sector have recovered quickly, and painstaking lockdowns and population tracing policies checked the spread of the COVID-19 virus. The Chinese economy & construction sectors are starting to see decent growth again. China’s real estate house of cards could be brought down by real estate company Evergrande, the world’s most indebted company. This could send ripples throughout the global financial market.
|INDIA||3.9 – 4.3||6.9 – 7.3||6.9 – 7.2||India is buying “cheaper” Russian oil that will benefit its economy but could prolong the Russia –Ukraine conflict. Construction-related escalation is increasing significantly in India and could be a grave problem for the construction sector. India continues to purchase advanced fighter jets & weapon systems for possible future problems/conflicts with China and Pakistan.
India has been hard hit by COVID-19, resulting in many deaths, however, COVID appears to be declining. Prime Minister Narendra Modi has earmarked a $2 + billion fund to mitigate the effects of the Coronavirus Pandemic on the Indian population & industry. India now ranks # 5 in the economy league table, more extensive than both the UK & France. Where will it be in the next 10 years?
3rd Q 2022 Prices at a Glance:
- Forecast Cost of a barrel of Crude Oil $115 – $135
- Forecast of Euro / US $ Exchange Rate 1.03 – 1.07
- Forecast of UK Pound / US $ Exchange Rate $1.15 – $1.25
- Forecast of Copper per pound $3.70 – $3.85
- Forecast of Aluminum per pound $0.75 – $1.05
- Forecast of Gold per Ounce $1,800 – $2,000
- US Construction Material Inflation (Basket of 10 construction materials) 6.9% – 9.9%
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