The analysts at Timetric's Construction Intelligence Center look forward to what the construction industry across the world can expect in 2016.
The pace of growth in the global construction industry stabilised in 2015, standing at 2.7% in real terms, unchanged from that recorded in 2014, according to the latest updated market analysis from Timetric’s Construction Intelligence Center (CIC). This outturn reflected the relative sluggishness in China’s construction industry, which offset improvements in a number of major markets, including the US. There will be a slight acceleration in output growth in 2016, with the pace of increase edging up to 2.8%, supported in part by an improvement in global economic growth.
Although the global construction industry is generating renewed growth momentum, there are clear regional differences across the world. The Middle East and Africa (MEA) region will post the fastest growth in 2016, at 5.9%. However, this is a slight deceleration compared with the rapid growth of 6% and above in recent years, and reflects the impact of the decline in global oil prices, which has negatively impacted public investment plans and also spending on construction projects in the region’s all-important energy sector.
Having suffered three consecutive years of slowing growth, the Asia-Pacific region, which accounts for around 45% of the global construction industry, will post an improved performance in 2016, expanding by 4%. The slowdown in the region’s growth in the past few years has been driven primarily by the weakness in China. The pace of growth in China’s construction industry is estimated to have dropped to 5.2% in 2015, down from 6.8% in 2014 and 9.5% in 2013. However, we do not expect it to continue to decelerate, as the authorities will attempt to support the economy via an acceleration in public investment programmes. Infrastructure investments will also ensure that the Philippines, Malaysia and Indonesia will continue to post healthy rates of growth in construction output.
Meanwhile, construction output in Australia will pick up again in 2016, having suffered a sharp decline in recent years in the face of difficulties in the energy and mining sectors. However, the industry will still be operating way below the levels it reached in 2012. Construction output growth in the US soared to an estimated 6.4% in 2015, bolstered by the rapid expansion in the residential market as well as spending on new projects in energy and power. Although still expanding, there will be a slowdown in growth in 2016 to more sustainable rates, but data on new construction starts will remain impressive, supported by the stronger state of the US economy, as evidenced by the US Federal Reserve’s recent decision to raise interest rates.
The size of the construction industry in Western Europe is still some 14% smaller than it was before the financial crisis, but it is recovering and will post growth of 2% in 2016. Construction works in the UK will expand by around 3%, with government support for infrastructure and housing projects continuing. Having suffered contractions in output in 2015, the construction industries in France and Germany will return to positive growth in 2016, while in Spain there will be a continued recovery. Eastern Europe suffered two consecutive years of decline in 2014 and 2015, with Russia’s demise having an impact on other markets in the region.
The construction industry in Russia will contract further in 2016 in real terms, with the weak economy and low oil prices continuing to curtail investment growth. Nevertheless, other major markets, such as Poland and Czech Republic, will expand, contributing to growth of 1.6% for the region as a whole in 2016. Latin America will remain the laggard in 2016, with its construction industry expanding by just 0.8%.
Construction output in the region fell by 2.5% in 2015, with Brazil’s construction industry estimated to have shrunk by 8.5%. Although works related to the 2016 Olympic Games in Rio de Janeiro will provide support, investment plans in general continue to be undermined by the fall-out from the biggest corruption scandal in the country’s history, with a number of directors at state-run energy giant, Petrobras, being accused of taking bribes from construction companies in return for the awarding of contracts.
The latest forecast for the global construction industry is based on a benign economic outlook. However, major risks to the world’s economic recovery persist. Notably, a sharper slowdown in China’s economy would have a severe impact on its key trading partners around the world, putting further downward pressure on commodity prices, an outturn that would negatively affect commodity-dependent markets in Latin America, the Middle East and Sub-Saharan Africa. The strength of the Eurozone also remains in doubt, and there is still a risk of Greece exiting the group, which would greatly destabilize the region’s financial markets. The return to a more normal monetary policy stance in the US could also create problems for some large emerging markets that have been supported in recent years by cheap capital. Higher rates in the US could result in a rapid outflow of capital from these markets, increasing their vulnerability and reducing the availability of investment funds.
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