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Global Construction Newsletter: July to August 2017

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The good news is that the Global Construction market for construction activity is projected to expand to $7.1 trillion by the close of 2017, up from $6.9 trillion in 2016.

The global construction market is forecast to experience a steady growth cycle, increasing between 2.8% & 4.1% in the next five years, assuming no major conflicts or economic disruptions occur. India, China, Indonesia, Vietnam & the USA are anticipated to be the leading major construction markets that will experience growth in the 1st half of 2017. India’s construction sector appears to taking the # 1 most active spot from China in 2017.

The US Commerce Department has started to initiate 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.

President Trump is to start 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 initiate 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 $49 & $54, expectations are that this price will trend downwards to $45 & $50 by end of June / July due to a possible oversupply situation.

President Trump 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 10 years.

US Oil / Gas & Energy companies are looking for a rollback of current Environmental Protection Agency (EPA) regulations. President 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 work towards significant regulatory reductions.

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, its economy is forecast to grow by more than 7.2% in 2017. The Indian construction sector is set to see solid growth in 2017 & 2018.

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 2nd half of 2017 (for the most part) are somewhat promising, from the more than nine years of economic difficulty we have witnessed. India, China, Vietnam, Indonesia, China, & the USA are seeing a 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 unemployment in their construction sectors in the 10% to 20% range, look for this to continue for the 2nd half of 2017.

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

South America’s construction sectors continue to struggle with restrained demand for EPC services.

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 2nd half of 2017

North America

2.4% to 2.8%

South America

1.2% to 1.7%

Western Europe

1.2% to 1.5%

Eastern Europe

0.9% to 1.3%

Middle East

2.2% to 2.6%

Asia / Australia & New Zealand

2.4% to 2.7%

Sub-Sahara Africa

1.8% to 2.3%

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

  1. The political infighting aimed at President Trump & his possible election campaign ties to Russia, could slow down his agenda.
  2. The continuing political problems caused by North Korea (missile testing), Syria & ISIS’s continuing terrorist attacks in Europe, the latest taking place in Manchester, UK.
  3. 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 & President Trump.
  4. Nobody knows what barrel oil will cost in the next six months, will it be $35 or $65 a barrel?

If some of these issues can be worked out or put to rest, then the global construction sector has an excellent 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

2.3

2.4

4.4

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-moving rate (2.3%). 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.

2.1

1.6

6.5

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.

0.7

3.9

13.6

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 0.6% to 0.8% range in the 2nd half of 2017.

1.6

0.7

3.9

The economic impact of "Brexit" & the election of Donald Trump is still being felt, the Pound Sterling has dropped more than 20% against the US Dollar in the last 9 months. Low oil prices have dramatically negatively impacted North Sea CAPEX spending.

1.6

2.1

4.4

The German GDP growth is forecast to be 1.6% 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.

1.3

1.2

9.9

The French economy is forecast to grow by 1.2% to 1.4% 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.

1.4

3.9

5.5

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.

1.3

0.3

3.0

The Japanese economy is forecast to grow by 1.2% to 1.4% 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?

6.2

1.7

4.2

US economic policy on trade & may generate some challenges for the Chinese economy & its construction sector, in view of President Trump’s comments on trade with China during his election speeches. 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.

7.2

3.7

5.3

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 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 – $57

Forecast of Euro / US $ Exchange Rate
1.04 – 1.10

Forecast Copper per pound
$2.88 – $3.03

US Construction Material Inflation (Basket of 10 construction materials)
1.5% – 2.2%


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