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Global Construction Newsletter: December to February 2017

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All around the world, uncertainty has generated caution in the Global Engineering and Construction market. Two unexpected events have come about in the last six months: Brexit and the election of Donald Trump to be the 45th President of the USA. A lot of governments and private investors are taking a hiatus for the next 3 to 6 months to consider what the ramifications of Brexit and a Trump Presidency means to their particular economies and construction sectors. Donald Trump’s surprising election win could positively impact the US construction sector in 2017 and the following four years beyond, however some countries could experience a construction related slowdown from his election.

The global construction market is forecast to experience a steady growth cycle, increasing between 2.5% and 4.5% in the next five years, assuming no major conflicts or economic disruptions occur. India, China, Indonesia, Vietnam and the USA are anticipated to be the leading major construction markets that will experience growth in the 1st Q of 2017. India’s construction sector appears to taking the # 1 most active spot from China as we move into 2017.

President-Elect Trump has started to gather a team of Cabinet Members and related staff to his future government, the US engineering and construction sector is scrutinizing his pre-election and post-election statements for pointers about his plans and the direction he will embark on when he takes office on 20th January 2017.

A major President-Elect Trump’s campaign topics was a pledge to generate millions of new jobs and boost expansion of the US economy.

Trump’s transition team recently pronounced 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.

US construction sector senior managers are optimistic that President-Elect Trump’s infrastructure plan will pass through the US Congress in President Trumps first 100 days.

US Oil / Gas and Energy companies are looking for a rollback of current Environmental Protection Agency (EPA) regulations. President-Elect Trump has voiced many times his dislike for the across-the-board regulatory procedures sanctioned by the EPA in the last eight years, he will seek a significant regulatory cutback.

The task of OPEC laboring to maintain and bolster oil prices in the $45 to $50 a barrel range has got a lot more challenging with Donald Trump capturing the U.S. presidency. 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.

We seem to be entering an unpredictable period in the global construction market. There is growing skepticism of Governments & current trade policies. Protectionism & the talk of future trade barriers are increasing not just in the USA but all around the world. These opinions have gained a foothold in Europe, Asia & South America in recent months. The election of Donald Trump has in many ways only increased this thinking.

India will overtake China and the USA with the highest direct foreign investment in 2017, its economy is forecast to grow by more than 7.5% in 2017, the Indian construction sector is set to see solid growth in 2017. Infrastructure, major roads, ports, airports, low cost housing, schools, hotels, manufacturing, fertilizer, petro-chemical, gas facilities & power plants are driving the Indian economy forward. The Global Engineering, Procurement & Construction (EPC) scenarios for the 1st half of 2017 are somewhat promising, from the more than nine years of economic difficulty we have witnessed. India, China, Vietnam, Indonesia, China, and the USA are seeing a growth in their construction sectors. However, certain counties such as Argentina, Brazil, France, Italy, Greece, Spain, Ireland, Portugal, Russia and a number of Eastern European countries are still experiencing unemployment in their construction sectors in the 10% to 20% range, look for this to continue for the 1st half of 2017.

Ongoing issues and problems in Syria and Ukraine have stymied construction activity in neighboring countries.

The Global Construction market is projected to expand over the next five years to a value of $10 + trillion. This growth will be driven by population expansion, the movement of people from rural areas to cities & towns, lower cost labor / business opportunities & the development of basic infrastructure needs (roads, schools, hospitals, airports & the like).

Region
Global Regional GDP Growth in 2017

North America

2.4% to 2.8%

South America

1.2% to 1.8%

Western Europe

1.2% to 1.5%

Eastern Europe

0.9% to 1.4%

Middle East

2.1% to 2.3%

Asia / Australia & New Zealand

2.4% to 3.0%

Sub-Sahara Africa

1.9% to 2.4%

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

  1. Donald Trump’s surprising election win, that could favorably impact the US construction in 2017 and the possible negative political and currency effect it could have on European Union (EU) countries.
  2. The “cancellation” of Iran nuclear deal by the new Trump administration.
  3. The probable weakening of the European Union (EU), which now faces more uncertainty after the “Brexit” leave vote and the election of Donald Trump.
  4. China's land reclamation & continuing construction projects in the Spratly Islands, a highly disputed area in the South China Sea & the response of China’s neighbors and President Trump.
  5. Nobody knows what barrel oil will cost in the next six months, will it be $30 or $60 a barrel.
  6. The weakening of the Euro to the US Dollar.

If some of these issues can be work out or put to rest then the global construction sector has a decent chance to grow & prosper in the next two to five years - particularly in some of the 2nd and 3rd world developing economies of South East Asia, Africa & South America.

Country
2017 % GDP Growth
2017 Inflation %
2017 Unemployment %
Comments on Construction 2017 Future Spending Activity

USA

2.1

1.6

4.9

Construction activity overall in the US is forecast to increase by 4% to 6% in 2017 over 2016 levels. Commercial / Infrastructure construction gradually improving in all areas of the USA. The US economy will continue to grow at a slow rate (2.1 % to 2.4 %). President Trump could be “a shot in the arm” for most of the US Energy Industry (oil, natural gas and coal industries) in the next four years; this is the takeaway from his many campaign speeches.

1.9

1.5

7.0

Construction (hotels, offices, shopping malls, institutional work and housing) is steadily improving in all Canadian Provinces. Oil & Gas CAPEX work has slowed considerably with current oil prices in the $40 - $45 a barrel range. The weakening of oil / gas and commodities markets around the world has impacted the Canadian construction sector.

1.1

4.0

11.8

Lots of labor & economic problems will continue to impact construction activity. The change in leadership will not put a quick fix of Brazil’s economy & construction sector, the recession is expected to continue throughout 2017. GDP is forecast to grow in the discouraging 1.1% to 1.3% range in the 1st half of 2017.

0.9

0.9

4.9

The economic impact of "Brexit" is still being felt 6 months after the vote and the election of Donald Trump, the Pound Sterling has dropped more than 20% against the US Dollar. Low oil prices have dramatically negatively impacted North Sea CAPEX spending.

1.3

0.5/p>

6.0

Germany gets ready for President Trump’s future trade policies and the impact these will have on the German economy and construction sector. Germany’s Chancellor Angela Merkel is facing continued resistance to her migration policy, however despite this she has recently announced that she will seek a fourth term in 2017.

1.2

0.3

10.1

The French economy is forecast to grow by 1.1% to 1.3% for the 1st half of 2017 nothing to get excited about. Construction activity remains very slow; however there are signs of activity in the infrastructure and transportation sectors.

1.3

6.2

5.4

The Russian economy is expected to improve in the 1st half of 2017 and of course this will positively impact construction activity. USA & European sanctions have seriously impacted the Russia construction sector in 2016, this situation could improve in 2017 with the new US President.

0.9

0.5

3.2

Construction industry continues to see slow but stable growth. Inflation is moving slightly upwards going into 2017.

6.3

2.1

4.8

US economic policy on trade may generate some challenges for the Chinese economy and its construction sector, in view of President Trump’s comments on trade with China during his election speeches. The Chinese economy is showing signs of slowing down; this has and will impact future construction activity. Add to this the devaluation of the Yuan, the major drop in the stock market and the property “boom” bubble that still is expected to play out, points to possible problems ahead for the Chinese construction market. Construction salaries & wages in some of the coastal cities are increasing in the 5% to 10% range.

7.5

4.2

5.1

Foreign investment is pouring into India as major US, European and Japanese companies eye India as a major growth country, look for this trend to continue in 2017. Infrastructure accounts for between 50% and 60% of India’s construction sector.

2nd Half 2017 Prices at a Glance

Forecast Cost of a barrel of Crude Oil
$40 – $50

Forecast of Euro / US $ Exchange Rate
1.01 – 1.04

Forecast Copper per pound
$2.65 – $2.95

US Construction Material Inflation (Basket of 10 construction materials)
1.2% – 1.8%


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