Output in the global construction market will expand by almost one third to reach annual values of nearly $US14 trillion over the next fifteen years, new forecasts show.
Releasing its latest forecast prepared in conjunction with Aon and other sponsors (see below), global economic and forecasting firm Oxford Economics said that it expects the overall value of construction work done throughout the world to increase by $4.2 trillion over the next fifteen years to go from $US 9.7 trillion in calendar 2022 to $US 13.9 trillion in calendar 2037 (fixed US dollar prices as at 2022).
Leading the way will be China, the US and India.
Put together, these nations will add more than $2.4 trillion to global construction growth over the next fifteen years – accounting for almost 60 percent of the overall increase in construction output.
According to the report, the worldwide construction sector is being influenced by several factors.
In terms of macroeconomic influences, the normalistion of interest rates is delivering headwinds for construction markets over the near term.
Moreover, there are downside risks to the above forecasts should either central banks overshoot on monetary policy tightening or should inflation become de-anchored from central bank targets and higher inflation levels become entrenched – a situation which could lead to more aggressive monetary policy tightening over a longer period.
Should this occur, the report suggests that as much as $2 trillion in construction output could be wiped from aforementioned forecasts between 2022 and 2027.
All up, this could see average construction growth over the next five years slashed from 2.4 percent per annum to 1.3 percent per annum.
The report notes that construction work done – which is forced mainly on capital intensive new construction – is particularly sensitive to higher borrowing costs.
Beyond macroeconomic factors, the move toward a cleaner economy will be a driver of growth and opportunity in new construction as well as a challenge to the sector – which current accounts for almost 40 percent of worldwide greenhouse gas emissions.
From an activity viewpoint, significant opportunities will arise from a need to adapt existing infrastructure to become more resilient to climate impacts.
The report argues that insurers will play a crucial role as contractors and developers who can demonstrate a proactive approach will be rewarded with more favorable insurance offerings.
Finally, there is the rising cost of construction materials.
Whilst pressures on supply and energy prices have eased, the forecast suggests that overall construction material costs could remain at least 15 percent higher compared with pre-pandemic levels even when prices eventually bottom out.
In the US specifically, prices could be even higher than this.
Moreover, Oxford says that rates of material price escalation may well exceed pre-pandemic escalation rates across the medium term amid persistently higher input costs for manufacturing.
Region by Region
According to the report:
- In the United States, construction is expected to undergo a slump in volume before growth resumes in 2024 as a combination of rising interest rates and the global correction in house prices blows a ‘hole’ of $US 150 billion below the ‘water line’ in residential construction work done. More encouragingly, however, construction work done in the powerhouse manufacturing and industrial production markets will remain relatively robust with strong growth supported by the US Inflation Reduction Act.
- China will resume steeper growth from 2025 following a recovery from current real-estate challenges. Over the longer term, however, Chinese construction growth will be constrained by structural challenges such as declining population and slower urbanisation.
- Courtesy of strong population growth and a rapidly growing urban middle-class, India will surpass Germany to become the third largest global construction market before the end of the decade. Growth will be driven by government investment following coronavirus lockdowns.
- ASEAN Tigers—The Philippines, Vietnam, Malaysia, and Indonesia will be the four fastest growing construction markets over the next 15 years. While the Philippines, Vietnam, and Indonesia are supported by strong fundamentals, Malaysia’s construction growth will be driven by rebound from the coronavirus pandemic.
- The United Kingdom is expected to be the fastest-growing larger construction market of the major Western European construction markets over the next 15 years, driven by large mega infrastructure projects. The transition of Britain’s power networks to renewables by 2035 and greater energy security are key drivers of this activity.
- In Western Europe, funds from the €800 billion EU Next Generation fund have already begun flowing—Spain and Italy are key beneficiaries. The EU Renovation Wave is a second important program that will impact construction activity as it aims to double the renovation rate of both residential and non-residential buildings with a target of reducing their greenhouse gas emissions 60 percent by 2030. These large programs will help construction work done to expand nearly one percentage point faster than GDP for the next five years. This growth would be faster were it not for the labour market pressures in European construction. According to Oxford, conservative estimates indicate that the Renovation Wave alone will require an additional 700,000 workers by 2030, equivalent to 6% of total current construction employment.
- There is expected to be heightened growth in Eastern Europe over the next 15 years, as an estimated US $1 trillion reconstruction effort will need to start when the Russia-Ukraine conflict ends whilst further rebuilding will be needed after the devastating earthquakes in Turkey.
- In Saudi Arabia/MENA, the total volume of construction work done in Saudi Arabia is expected to exceed that in the UAE by 65 percent by 2037 as construction of Saudi Arabia’s Giga Projects drive enormous growth. The population across the wider MENA region is set to grow by almost 120 million people with total construction work done exceeding US $1.1 trillion by 2037.
- Sub-Saharan Africa remains a sleeping giant and rivals Emerging Asia as the fastest-growing region globally. The cumulative spending on construction work done across sub-Saharan Africa is set to reach US $3.9 trillion over the next 15 years—with Kenya in East Africa and Nigeria in West Africa being fast-growth markets.
The Global Construction Future report represent a major study of prospects for construction work done over the next fifteen years.
The report was supported by lead global sponsor Aon along with other sponsors including Gleeds, ICE, Mott McDonald, PwC, RICS, Rider Levitt Bucknall and WSP.
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