The Global Construction Newsletter Q1 2023

The global economy expanded by 3.2% in 2017 compared to the previous year, which bodes well for 2018. Most of the world’s major economies are experiencing positive growth as we move into the 2nd half of 2018. The International Engineering, Procurement and Construction (EPC) market is estimated to grow to $7.40 trillion by the end of 2018, up from $7.15 trillion in 2017 – an annual increase of 3.5%. 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 in the next 10 years, a 35% increase.

The (5) fastest growing economies are:

1. India 7.2%
2. China 6.3%
3. Vietnam 6.5%
4. Philippines 6.4%
5. Indonesia 5.6%

These countries projected GDP growth rates are for 2nd Q 2018: (note: this can be used as a metric to gauge potential construction growth activity in each of these countries). Major counties that will experience slow growth of less than 2% in the next (6) months include Japan, UK, New Zealand, Italy and South Africa. From the above list it appears that the best construction related markets for growth in 2018 are located in Asia.

The global pickup in economic activity is strengthening and will continue in the 2nd Q of 2018. The worldwide construction market is forecast to experience a solid growth cycle, increasing between 3% and 4% (average 3.5%) in the next (10) years, assuming no major conflicts or economic disruptions occur. India, China, Vietnam, Indonesia and the USA, are projected to be the leading major construction markets that will experience above average growth in 2018. Increasing demand for all types of construction services in the USA and the Asia – Pacific Region (APAC) will compensate for slow growth in Europe and South America over the next year or two.

India’s construction sector has taken the # 1 most active ranking spot from China as we move into the 2nd half of 2018. Infrastructure, highways, airports, bridges, power plants and electrical transmission lines etc., is driving this phenomenal growth activity. This growth appears to be on the cards for the next five years or more.

Current world political issues that could impact the above somewhat positive comments are:

• The prospect of a trade war between China and the USA is a distinct possibility.
• The possibility of a conflict between the USA and North Korea have perhaps dissipated with the future planned meeting between both heads of state in May.
• The political and territorial ambitions of Russia, now that President Putin has secure a new six year term.
• The political infighting and now the Special Counsel directed at President Trump and his possible election campaign ties to Russia, has slowed down his agenda.
• Nobody knows what barrel oil will cost in the next six months, will it be $40 or $70 a barrel, oil prices have been moving upwards in the last four months.
• China’s reclamation and continuing construction projects in the Spratly Islands, a highly disputed area in the South China Sea continues to be a major problem.

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, Africa and South America. The Trump administration is initiating the renegotiating of North American Free Trade Agreement (NAFTA) with Mexico and Canada – this could possibly impact construction material costs, specifically lumber products. Changes to (NAFTA) or US withdrawal from (NAFTA) risks encountering retaliatory import duty / tariff increases. The US Commerce Department has started to introduce import tariffs of 25% imported steel and 10% on aluminum products, it appears that Mexico and Canada are exempt from these tariffs until the NAFTA agreement is resolved. Also being considered are import duties ranging between 15% and 25% on Canadian Timber / Lumber products such as framing and plywood. Canada sells $5 billion per year of Timber / Lumber products to the USA. The months of January and February saw crude oil prices rise above the $60 a barrel for the first time in over two years.

The Trump administration recently announced a ten year $1 trillion plan to fund new infrastructure (highways, airports, bridges, tunnels and the like) funded for the most part by non-government bonds and private investing schemes. Some industry experts believe that the US infrastructure needs an estimated $2 to $3 trillion to be spent in the next ten years.

One of President Trump’s major goals is to make the USA completely independent of the need to import oil products from OPEC countries or any countries that appear unfriendly to USA views and interests, look for USA domestic oil to increase significantly in the next 12 to 24 months.

India will overtake China and the USA with the highest direct foreign investment in 2018, its economy is forecast to grow by more than 7.2% in the 2nd half of 2018. The Indian construction sector is set to see strong and robust growth in 2018 and beyond, inflation is somewhat high at 4.5% and is forecast to trend upwards in the next six to nine months to more than 5%. Civil Engineering, Infrastructure and Commercial projects such as, transportation, ports, railways, low cost housing, schools, hospitals, manufacturing, fertilizer, petro-chemical, gas facilities and power plants are moving the Indian economy forward.

The International Engineering, Procurement and Construction (EPC) scenarios for the 2nd half of 2018 are for the most part positive, from the more than ten years of economic difficulty and slow growth. India, China, Vietnam, Indonesia, China, Vietnam, Malaysia and the USA are the bright spot, these countries are experiencing decent growth in their construction sectors.

On the other hand, certain counties such as South Africa, Venezuela France, Italy, Greece and Japan are still experiencing limited, less than 1.5% or no growth and some continue to experience high levels of unemployment in their construction sectors in the 10% to 20% range. Look for this to continue for the 2nd half of 2018.

The good news is that the International Construction market is forecast to be a $10 trillion market in the next decade. This growth will be driven by population expansion, the movement of people from rural areas to cities and towns in Asia and Africa. There will be significant need for low cost housing, schools, hospitals, power plants, potable water systems, roads, airports and the like.