Output in the construction sector around the world is set to rise modestly over the near term, a survey involving more than 3000 development and construction firms indicates.
But the outlook continues to diverge across geographic locations and sectors of construction.
Releasing the third quarter edition of its Global Construction Monitor report (available for download here), the Royal Institute of Chartered Surveyors (RICS) says its Construction Activity Index (CAI) registered a score of +10 in the latest quarter.
This is slightly below the +15 result in the second quarter but is above the 0.0 mark which separates expanding activity from contracting output.
As such, the survey indicates that a modest increase in construction activity is expected over the near-term.
But the survey also reveals a widening divergence across geographic locations and sectors.
In terms of locations, current conditions and future expectations are particularly high in the Middle East and Africa (MEA).
Across the MEA region, the CAI rose from +25 in the June quarter to +34 in the September quarter on the back of high levels of activity in residential development and civil infrastructure.
This represents the highest quarterly reading in the region since the series began three years ago in 2020.
Expectations are particularly buoyant in Saudi Arabia, Mauritius and the UAE.
In Europe by contrast, the index contracted further from a reading of -1 in the second quarter to -9 in the latest quarter.
This suggests expectations of an outright decline in construction market activity across the continent.
Whilst the infrastructure market remains active, sentiment across the continent is being weighed down by expectations of declining residential activity and profit margin pressure.
Asked about factors which are driving the subdued outlook, survey participants pointed to difficulties in obtaining financing, low confidence, high energy costs and planning restrictions as well as skills shortages in some areas.
Expectations are particularly weak in Spain, where concerns range from energy prices to difficulty in obtaining finance and the political situation in that country.
Elsewhere, confidence levels remain solid across The Amercias (+22, almost unchanged from +23) and remain modestly positive despite having contracted in APAC (+8 – down from +15).
In North America, expectations regarding infrastructure remain solid despite a significant weakening in the outlook for new housing projects.
Turning to APAC, strong momentum continues in India and the Philippines but expectations remain subdued in China on account of weak property market conditions in that country.
Turning specifically to Australia, the CAI edged up from +8 to + 13 as the continued rollout of public infrastructure projects more than offset a slowdown in residential projects.
In terms of sectors, meanwhile, the positive reading overall is being entirely driven by confidence in the infrastructure sector, which has held steady at +29 amid the continued rollout of large-scale capital works projects across several countries.
Confidence has turned slightly negative in private residential construction (-7) and non-residential building construction (-1) as rising interest rates affect household borrowing capacity along with the cost of finance related to new projects.
The latest data comes amid increasingly challenging conditions across the world economy.
In its latest World Economic Report released last month, the International Monetary Fund said its expected global economic growth to decline from 3.5 percent in 2022 to 3.0 percent in 2023 and 2.9 percent in 2024 as rising interest rates are leading to subdued conditions across much of the developed world.
In other survey results:
- Financial constraints were identified as the most significant challenge that is impeding construction activity followed by material costs, labour shortages and skills shortages.
- Worldwide, employment expectations remain mildly positive over the next twelve months (+17), with subdued expectations in Europe being offset by high expectations in the MEA region.
- As construction cost pressures ease, annualised rates of expected cost growth continue to ease (refer chart).
The RICS Construction Activity Industry Index is calculated by taking an unweighted average of current and twelve-month expectations across residential workloads, non-residential workloads, infrastructure workloads and profit margins.
All up, 3,285 company responses were received on a global basis.
It is important to note that the survey questionnaire was sent out on 14 September and responses were received until 23 October.
Accordingly, any impacts which are associated with the Israel/Gaza war will be only partially reflected in the survey results.
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