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Global Construction Newsletter: September to November 2017

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The International Engineering, Procurement and Construction (EPC) market is estimated to expand to $7.35 trillion by the end of 2018, up from $7.15 trillion in 2017 an annual increase of 2.8%. The make-up and distribution of this value by region is as follows:

Region
2017 Value in Trillions $’s

North America

1.90

South America

0.60

Western Europe

1.55

Eastern Europe

0.5

Middle East

0.60

Asia / Australia & New Zealand

1.8

Sub-Sahara Africa

0.20

Total

7.15



The worldwide construction market is forecast to experience a solid growth cycle, increasing between 2.7% & 3.3% in the next five years, assuming no major conflicts or economic disruptions occur. India, China, the USA, Indonesia & Vietnam are projected to be the leading major construction markets that will experience above average growth in the 2nd half of 2017. India’s construction sector appears to taking the # 1 most active ranking from China as we transition out of 2017 and move into 2018.

The Trump administration is initiating the renegotiating of North American Free Trade Agreement (NAFTA) with Mexico & Canada, this could possibly impact construction material costs, specifically lumber & cement 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 between 25% & 125% on imported carbon steel reinforcing rods from Japan, India, Turkey & possibly other countries, also being considered are import duties ranging between 15% & 25% on Canadian Timber / Lumber products such as framing & plywood. Canada sells $5 billion per year of Timber / Lumber products to the USA.

The selling price of crude oil is currently ranging between $48 & $53, expectations are that this price will trend downwards to possibly $40 to $45 by end of November due to a possible oversupply situation. Look for a possible US embargo on Venezuelan Oil as Venezuela’s political problems get worse, currently the US imports 500,000 to 750,000 barrels of oil per day from Venezuela.

The Trump administration recently announced a ten year $1 trillion plan to fund new infrastructure (highways, airports, bridges, tunnels & the like) funded for the most part by non-government bonds & 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 & interests, look for USA domestic oil to increase significantly in the next 12 months.

India will overtake China & the USA with the highest direct foreign investment in 2017, India’s economy is forecast to grow by more than 7.1% in the 2nd half of 2017. The Indian construction sector is set to see solid growth in 2018 & 2019.

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 International Engineering, Procurement & Construction (EPC) scenarios for the 2nd half of 2017 are (for the most part) somewhat promising, from the more than nine years of economic difficulty we have witnessed. India, China, Vietnam, Indonesia, China, & the USA are seeing decent growth in their construction sectors. However, certain counties such as Argentina, Brazil, France, Italy, Greece, Spain, Ireland, Portugal, Russia & a number of Eastern European countries are still experiencing high levels of unemployment in their construction sectors in the 10% to 20% range - look for this to continue for the 2nd half of 2017.

Persistent issues & problems related to North Korea, Syria & Ukraine have stymied construction activity in bordering countries.

South America’s construction sectors for the most part continue to struggle with reduced demand for EPC services.

The International Construction market is projected to grow 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).

The International Engineering, Procurement and Construction (EPC) market is estimated to expand to $7.35 trillion by the end of 2018, up from $7.15 trillion in 2017 an annual increase of 2.8%. The make-up and distribution of this value by region is as follows:

Region
Global Regional GDP Growth in 2nd half of 2017

North America

2.4% to 2.8%

South America

1.2% to 1.6%

Western Europe

1.1% to 1.5%

Eastern Europe

0.9% to 1.2%

Middle East

2.1% to 2.6%

Asia / Australia & New Zealand

2.4% to 2.7%

Sub-Sahara Africa

1.8% to 2.2%

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

  1. The political infighting and now the Special Counsel directed at President Trump & his possible election campaign ties to Russia, has slowed down his agenda
  2. The possibility of conflicts between the USA and North Korea and another potential clash between China and India on a disputed border issue.
  3. The continuing ISIS inspired terrorist attacks in Europe, Manchester, London, Nice and Paris and most recently in Barcelona.
  4. China's reclamation & continuing construction projects in the Spratly Islands, a highly disputed area in the South China Sea & the response of China’s neighbors & The Trump administration.
  5. Nobody knows what barrel oil will cost in the next six months, will it be $35 or $65 a barrel.

If some of these problems can be resolved or put to rest then the international construction market has a fair 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, Africa & South America.

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

USA

2.6

2.1

4.3

Hurricane Harvey made landfall on the Texas coast late August the damage and repairs to property could cost anywhere from $10 to $25 billion and could take up to 18 months for the construction work to be completed. Construction activity overall in the US is forecast to increase by 4% to 5% in 2017 over 2016 levels. Commercial / Infrastructure construction gradually improving in all areas of the USA. The US economy will continue to grow at an improving rate (2.8%). President Trump could be “a shot in the arm” for most of the US Energy Industry (oil, natural gas & coal industries) & Construction Industry in the next four years.

2.3

1.7

6.3

Construction (hotels, offices, shopping malls, institutional work & housing) is steadily improving in all Canadian Provinces. Oil & Gas CAPEX work has slowed considerably with current oil prices in the $50 - $55 a barrel range. The weakening of oil / gas & commodities markets around the world has impacted the Canadian construction sector.

0.5

3.8

13.2

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 0.4% to 0.6% range in the 2nd half of 2017.

1.5

2.1

4.3

The economic impact of "Brexit" & the election of Donald Trump is still being felt, the Pound Sterling has dropped more than 10% against the US Dollar in the last 12 months. Low oil prices have dramatically negatively impact North Sea CAPEX spending.

1.8

1.7

3.9

The German GDP growth is forecast to be 1.6% - 1.9% in the 2nd half of 2017. Germany gets ready for President Trump’s future trade policies & the impact these will have on the German economy & construction sector. The German Federal Election will take place on September 24th.

1.5

1.3

9.6

The French economy is forecast to grow by 1.3 to 1.6% for the 2nd half of 2017 nothing to get excited about. Construction activity remains very slow; however there are signs of activity in the infrastructure & transportation sectors. France elected a new President – Emmanuel Macron.

1.5

4.0

5.2

The Russian economy is expected to improve in the 2nd half of 2017 & 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 the 2nd half of 2017 with the new US President.

1.4

0.5

2.8

The Japanese economy is forecast to grow by 1.2% to 1.5% for the 2nd half of 2017 Construction industry continues to see slow but stable growth. What to do about North Korea is a major issue that could eventually impact the economy.

6.5

1.8

4.1

The ongoing potential conflicts between the USA and North Korea could result in US economic policy on future trade could generate some challenges for the Chinese economy & its construction sector, in view of President Trump’s comments on trade with China. The Chinese economy is showing some signs of moderating; this has & will impact future construction activity. Add to this the devaluation of the Yuan, the major drop in the stock market & the property “boom” bubble that still is expected to play out & the North Korean impasse 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.

7.1

3.8

5.1

5.1 Foreign investment is pouring into India as major US, European & Japanese companies eye India as a major growth country, look for this trend to continue in the 2nd half of 2017. Infrastructure (roads, ports, bridges, electrical transmission lines etc.,) accounts for between 50% & 70% of India’s construction sector.

2nd Half 2017 Prices at a Glance

Forecast Cost of a barrel of Crude Oil
$48 – $54

Forecast of Euro / US $ Exchange Rate
1.08 – 1.18

Forecast Copper per pound
$2.88 – $3.02

US Construction Material Inflation (Basket of 10 construction materials)
1.7% – 2.2%


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