The construction sector is set to power the world’s economy over the next decade as high levels of residential building activity drive near-term growth and infrastructure investment underpins longer term momentum, a new report says.
In its latest forecasts, Oxford Economics says it expects the overall value of worldwide construction output to grow by 35 percent from $US10.7 billion in 2020 (constant 2017 prices) to $US15.2 billion in 2030.
In its report, Oxford said global construction activity declined by 4.3 percent from calendar 2019 to calendar 2020 following the onset of the worldwide pandemic
However, the sector has rebounded and output is expected to grow by 6.6 percent in 2021.
Going forward, the world’s construction market is expected to expand by $US1.75 trillion over 2022 and 2023.
More broadly average construction growth will come in at 4.4 percent over the five years to 2025 and 3.5 percent over the following five years to 2030.
At this level, Oxford Economics expects the growth rate in construction to outpace that in both manufacturing and services.
In terms of countries, Oxford says growth will centre around the four key markets of China, India, the US and Indonesia.
Together, these markets are expected to account for almost 60 percent of growth in construction output over the next decade.
Whilst China and the US will remain clear market leaders by size, meanwhile, developing nations will grow in importance over the next ten years.
In 2023, India will overtake Japan to become the third largest construction market in the world.
By 2030, meanwhile, Indonesia will have leapfrogged Germany, the United Kingdom and Japan to become the fourth largest market.
In terms of sectors, meanwhile, Oxford says that over the near term, activity growth will be driven by an upturn in the residential sector.
By dollar value, this is the single largest subsector within the construction market and accounted for 44 percent of overall construction output by US dollar value in 2020.
This is happening as pent-up demand in the wake of the pandemic is serving to kick-start the sector and strong demand for housing is evidenced through rising dwelling prices.
With economic activity having ground to a halt in the early part of the pandemic, meanwhile, Oxford says many households have had the opportunity to accumulate savings.
The release of these savings will drive stronger renovation activity and upsizing of residential space.
Over the medium term, growth will be driven by infrastructure.
In calendar 2021, activity in this sector is expected to expand by 6.8 percent. This will make it the fastest growing sector in percentage terms – although residential being a larger sector will contribute a greater dollar value in growth in absolute terms.
Across the decade, output growth in this sector is expected to come in at 4.0 percent.
Whilst stimulus-related expenditure drives healthy levels of activity in developed markets, Oxford says the biggest action will be in developing economies.
Countries such as India and Indonesia are expected to register compound annual growth rates of 9.6 percent and 8.2 percent over the decade respectively.
Growth in these markets will be driven by development of energy, transport networks, sewage and waste systems and other large-scale projects.
Finally, recovery will occur more slowly in non-residential building.
Whilst momentum in this sector will pick up in the latter half of the decade, Oxford says growth over the five years to 2025 will remain subdued as a slowdown in international travel and a move toward working from home has paused a raft of office and accommodation projects.
Outside specific activity forecasts, Oxford says several trends will emerge across the construction sector.
Rising populations will drive construction demand across emerging markets.
Meanwhile, permanent inward immigration will support construction demand across Anglosphere and other developed countries.
Growing working-age populations help drive the need for workplace construction whilst a gradual return to urban centres will support growth in multi-family residential construction.
Finally, Oxford says climate change and the race to NetZero will be a challenge for the sector as emissions associated with construction materials are expected to rise on account of the greater number of buildings being constructed.
Graham Robinson, Global Infrastructure and Construction Lead at Oxford Economics and lead author of the report, said the importance of construction to the global economy should not be underestimated.
“It’s unusual to see construction outstripping growth in both services and manufacturing over a sustained period,” Robinson said.
“But it’s not surprising that construction is expected to power the global economy over this next decade, considering the unprecedented nature of stimulus spending on infrastructure by governments and the unleashing of excess household savings in the wake of COVID.
The report was prepared with input from insurance broker and risk advisory firm Marsh and global risk and reinsurance specialist firm Guy Carpenter.