Construction experts remain optimistic in the strength of the industry, according to a new report, despite the first quarter of 2016 being marked by a decline in confidence levels.
Timetric’s Construction Confidence Report concluded that the industry’s current confidence levels have declined from 61.5 points in Q4 2015 to 61.2 points in Q1 2016, following a downward trend that started in 2014.
Even though this is the fifth successive quarter of decline, the score remains above the 50-point mark which indicates a positive outlook regarding growth prospects — and the industry is optimistic regarding growth expectations for the next six months.
Danny Richards, leading economist at Timetric’s Construction Intelligence Center (CIC), recognises the positive findings, but states that the decline has had an impact in construction companies.
“Although still optimistic over the potential for growth, the decline in the Current Confidence Index suggests that the level of optimism is weakening, and that it is becoming more challenging to win contracts,” he said.
Economic Impact Index (EII)
Another factor impacting the global construction industry is the world’s global economy health, represented by the EII.
The EII dropped to 44.0 points in the Q1 2016, following a trend from the last two quarters, where 46.7 points in Q3 2015 fell to 45.2 points in Q4 2015.
This means that the weakness verified in the global economy, specifically in key markets, has given little support to the industry that is now struggling to generate growth.
“Although the global economy is on a firmer footing, and will grow by around 3% in 2016, there is still a great deal of uncertainty over the short-term growth performance in key markets, reflecting heightened geopolitical risks and the sluggishness in China’s economy,” said Richards.
“Until there is a more assured outlook for economic growth globally, developers will remain relatively risk-averse in terms of their investment strategies.”
The Index covers eight major regions in the world. Asia’s regional economy is the one having the most positive impact, with an EII score of 56.6 in Q1 2016.
Notwithstanding the economic expansion shown in the region’s emerging markets, the EII score has been in decline over the past six quarters, due to the anxiety over China’s economy and the slowdown in the area’s construction activity.
The weakness in oil prices has resulted in lower scores from the Middle East and Africa regions, of 44.1 and 41.8 respectively. Public investment in those regions has eased and construction projects are being put on standby.
North America, Western Europe and Australasia had an EII score above 50 points in Q1 2016, while Eastern Europe and Latin America had a sub-50 score, partly due to contracting industries like Russia and Brazil.
According to Richards these trends are likely to continue: “There are unlikely to be any major shifts in the trends in the regional EII scores. For example, the EII for Asia-Pacific will continue to be weighed down by the challenges facing China’s policymakers in terms of rebalancing the country’s economy, and with oil prices only set to pick up marginally, the EII for the Middle East will remain below the 50-point mark”.
*For more information about the construction industry, visit the Construction Intelligence Center.