3 November 2009 — Driven by strong upturns in Asia and despite additional, though slowing declines in the U.S. and Europe, the global construction market is forecast to yield virtually no growth in 2010 following back-to-back contractions in 2008 and 2009, according to the Third Quarter Global Construction Outlook by IHS Global Insight’s Construction Service.
The flat spending expected for global construction in 2010 lags the more robust bounce expected in 2010 for global economies but positions the industry for stronger gains in 2011, according to the IHS Global Insight forecast. Global GDP is expected to grow 2.5% in 2010, suggesting that the recession is over and that expansion may already be underway. Economic growth is forecast to vary widely across the globe in 2010, from approximately 1% in Europe and Japan to 10% in China.
“Excess capacity, whether residential, commercial, or industrial, must be absorbed before new construction can commence. This is true for all recoveries, but the path out of financially lead recessions is longer than for more ‘conventional’ supply/demand imbalance recessions,” said Scott Hazelton, director of IHS Global Insight Construction Services Group. “This suggests that countries whose construction markets relied on significant foreign direct investment, such as many in Eastern Europe, could have recovery delayed by inadequate financing. It also suggests that firms oriented toward renovation products and equipment will see increasing revenues first, as existing space is upgraded as it is absorbed by new tenants.”
Construction growth in Asia, excluding Japan, is being driven by an uptick in the infrastructure sector and strongly supported by aggressive fiscal and monetary stimulus. It is projected to grow from 5.9% in 2009 to 7.1% in 2010. However, the aggressive stimulus policy has exacerbated China’s long-standing problems of excess capacity and a less-than-healthy banking sector. A combination of a pullback in stimulus spending and a weak rebound in export demand will likely cause China’s economy to slow after 2010.
As a result, construction in China is forecast to rise 10.8% in 2010 but slow to 8.6% by 2014.
Offsetting the growth in Asia, are the declining construction forecasts for the U.S., Western Europe and Japan.
Total construction in the U.S. is forecast to fall 12.5% in 2009 and 6.8% in 2010, pushed downward by a decline in commercial construction in 2009 of 26.6% and another 20.9% drop in 2010. The industry is being hurt by weak consumer and business confidence, and tight credit conditions.
While Western European economies have begun to stabilize, tight credit, housing market conditions, a strong euro and rigid labor market conditions continue to impede recoveries in construction which will decline 9.6% in 2009 and is expected to fall another 4.1% in 2010. Infrastructure construction, projected to grow 3.8%, is the only bright spot in the construction forecast, and there are serious doubts about the sustainability of stimulus packages in a number of countries. The longer term Western Europe construction outlook remains grim.
Japan’s construction market is forecast to contract 5.3% this year and become slightly positive – 0.6% — in 2010.
The IHS Global Insight Construction Service provides analysis, forecasts, and data on the worldwide construction industry for building materials manufacturers, construction equipment, engineering and services companies, real estate investment and financial services firms, home improvement retailers and architectural firms, and the U.S. and other governments. For the Third Quarter Global Construction Outlook Executive Summary, go to www.ihsglobalinsight.com/constructionoutlook.
IHS Global Insight is an IHS (NYSE: IHS) company.
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IHS Global Insight (www.ihsglobalinsight.com), an IHS company, provides the most comprehensive economic and financial information available on countries, regions and industries, using a unique combination of expertise, models, data and software within a common analytical framework to support planning and decision-making. Through the world’s first same-day analysis and risk assessment service, IHS Global Insight provides immediate insightful analysis of market conditions and key events around the world, covering economic, political, and operational factors. IHS (NYSE: IHS) is a leading global source of critical information and insight, dedicated to providing the most complete and trusted information and expertise. IHS product and service solutions span four areas of information that encompass the most important concerns facing global business today: Energy, Product Lifecycle, Security, and Environment supported by Macroeconomics. IHS employs approximately 4,000 people in 20 countries.
