The Global Construction Industry:
Prior to the coronavirus (COVID-19) outbreak, leading data and analytics company GlobalData had predicted that there would be an acceleration in the pace of growth in the global construction industry, but given the severe disruption in China and other leading economies worldwide following the outbreak, the forecast for growth in 2020 has now been revised down to 0.5% (from 3.1% previously).
The current forecast assumes that the outbreak is contained across all major markets by the end of the second quarter, following which, conditions would allow for a return to normalcy in terms of economic activity and freedom of movement in the second half of the year. However, there will be a lingering and potentially heavy impact on private investment owing to the financial toll that was inflicted upon businesses and investors across a wide range of sectors.
While growth in 2021 will be marginally higher than previously expected owing to the projected rebound (and high year-on-year growth rate) in the first half of next year, in the event that the spread of the virus continues into the second half of 2020, further downward revisions to the growth outlook are likely.
GlobalData’s report, ‘Global Construction Outlook to 2024 - COVID-19 Impact’ reveals the extent to which the construction industry has been affected in all major regions.
Danny Richards, Lead Economist at GlobalData, comments: “With extreme quarantine measures including lockdowns of entire countries as well as international travel restrictions being imposed across many major economies, the supply shock is expected to dampen economic activity. The direct impact on construction has meant the halting of work with labour unable to get to sites or because of disruption in the delivery of key materials and equipment.”
More generally, the construction industry will be heavily affected by the expected widespread disruption to economic activity and a likely drop in investment, with planned projects being delayed or cancelled. GlobalData foresees particular struggles in the commercial and industrial sectors; businesses in these sectors are most at risk from the severe drop in economic activity, domestically and globally, and their immediate priorities will be on staying afloat and rebuilding their core operations, rather than expanding and investing in new premises or capacity. The residential sector also will struggle as economic activity weakens and unemployment rises, despite low interest rates and direct government support. There is a high risk that a considerable proportion of the early stage projects in these sectors will be cancelled or at least pushed back, with few new projects starting in the second quarter of 2020 as firms review their expansion plans.
Richards adds: “Governments and public authorities will likely be aiming to advance spending on infrastructure projects as soon as normality returns so as to reinvigorate the industry. With interest rates falling to record lows, borrowing costs will be at a minimum, but the success of government efforts to spend heavily on infrastructure will be dependent in part on their current financial standing. Moreover, with most governments prioritising cash hand-outs, particularly to the economically weaker segment, their capability to invest in the infrastructure segment is likely to be constrained, especially in countries with high debts.”
With economic conditions set to deteriorate in the coming months, as much of Western Europe has been placed under strict lockdown, the construction industry is set to face severe disruption. GlobalData has revised its forecast for the Western Europe construction industry, with a contraction of 1.9% expected.
GlobalData’s report, ‘Global Construction Outlook to 2024 - COVID-19 Impact’, reveals that the commercial sector, in particular tourism and hospitality, are likely to experience a sharp downturn in the coming months. Projects in this sector are likely to come to a complete halt due to a lack of financing across Western Europe. Residential construction will also struggle, as the expected increase in unemployment and household debt across the region are likely to severely stifle demand.
Moustafa Ali, Economist at GlobalData, comments: “The economic outlook for the region has significantly weakened in the past month, according to market consensus. The region is set for a recession in the first half of the year. Major markets such as Germany, France, Italy and the UK are all set for negative growth in 2020.”
UK and Ireland
With UK and Ireland construction firms announcing site closures, project delays and profit warnings amid the coronavirus (COVID-19) outbreak, Moustafa Ali, Economist at GlobalData, a leading data and analytics company, offers his view on the challenges facing the industry.
“As the virus outbreak worsens in the UK and Ireland, several contractors have announced site closures and project delays to fulfil the governments’ social distancing requirements. The decisions taken by the firms have come with a severe economic and financial cost, with construction output expected to plummet in both countries in the coming months.”
“Given the project delays and more set to be announced in the coming weeks, GlobalData expects the construction industries in the UK and Ireland to be both severely disrupted by the ongoing lockdown measures. The UK’s construction industry is set to contract by -2.5% in 2020, while in Ireland the industry is expected to expand by only 1% this year following a solid year in 2019 when output expanded by 5.8%.”
“There is scope for further downward revision of the forecast for both countries if the health situation deteriorates and lockdown measures are intensified or prolonged.”
“Several project delays and site closures have been announced, including key flagship government infrastructure projects that had been expected to support growth in construction in both countries. The project delays are a significant blow to contractors, with several, including Taylor Wimpey and Balfour Beatty, announcing that they will suspend dividend payments to shareholders.”
Read the article online at: https://www.worldcement.com/special-reports/03042020/globaldata-reports-on-the-global-construction-outlook-in-the-midst-of-covid-19-outbreak/
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