Global construction prospects

This forecast review is for a period covering 2021-2026, analyzing anticipated construction growth during this time.

The global construction market scale is expected to increase from circa $11.5 trillion (2020) to $12.5 trillion (2021) at a compound annual growth rate (CAGR) of 9 per cent, reaching $16.6 trillion by 2025, according to Business Wire.

The RICS Q3 2021 Global Construction Monitor also indicates that construction activity is still on the rise, however, material shortages and escalating costs are hampering growth. ICT and energy sectors are expected to remain as the fastest growing areas.

The global construction industry is expected to be a key catalyst for economic recovery from the coronavirus, propelled by government stimulus, infrastructure spending, refurbishment and maintenance and residential construction requirements. Construction businesses are reacting across the globe to accelerate digital adoption and create innovative solutions to ease cumbersome industry norms and increase efficiencies to further fast-track recovery.

North America

The construction industry in North America’s was estimated to be circa USD two trillion in 2020 and is forecasted to record a CAGR of 5.2 per cent between 2021-2026, according to Mordor Intelligence.

North America’s construction sectors are being propelled by strong residential growth, which has been somewhat unobstructed by lockdown restrictions. The demand for new affordable suburban homes remains strong, and growth is notably concentrated on single-family homes. Previously, demand has been held back by a lack of affordable housing, especially among young adults looking to join the property ladder. Non-residential growth is expected to be restrained as the US transitions out of lockdown, with many areas such as retail, office space and hotels all continuing to be slow moving, according to Oxford Economics ‘Future of Construction Report’ (2021).

Moving forward, the American Jobs Plan (AJP) is set to boost US infrastructure construction with plans for rebuilding highways and railroads, repairs to old bridges and the boring of new tunnels. AJP’s spending plans are anticipated to have a significant proportion focused on the development of “green solutions”, including interconnecting cities through high-speed rail, creating new mass transit systems within urban centres and developing new public transport infrastructure. Another key area of the infrastructure spend, and in support of the US transitioning away from internal combustion engine vehicles, will be the expansion of EV charging networks throughout the country.

Canada’s forecast for the construction industry was expected to increase by 2.5 per cent in 2021, following the launch of the government’s “Growth Plan” in October 2020. This plan aimed to invest USD 7.6 billion over the next three years to create 60,000 jobs to support the recovery from the coronavirus pandemic. The spending will include USD two billion for clean energy, USD 1.6 billion for building retrofits and USD 1.5 billion for electric buses and charging infrastructure, according to Business Wire. Additionally, the government announced spending plans in February 2021 to inject USD 12 billion in public transport projects over the next eight years.

Latin and South America

In 2021, economic activity was projected to grow at 5.2 per cent; a rebound insufficient to return GDP to 2019 levels after the deep recession of 2020. Growth will be supported by moderate progress in the rollout of the coronavirus vaccine, reduced mobility restrictions and improved external economic conditions, according to World Bank, Global Economic Prospects (2021).

Income losses per capita are expected to extend in to 2022, particularly for small island economies in the Caribbean. However, robust growth and fiscal support in the US could provide some relief to forecasted downsides.

Key downside risks for Latin and South America include increases in coronavirus cases, sluggish vaccine rollouts, adverse market reactions and disruptions from social unrest, as well as those related to climate change and natural disasters. According to Oxford Economics’ Future of Construction Report (2021), immediately prior to the coronavirus pandemic, the Brazilian construction sector was on the brink of recovering from a five-year depression.

Recovery and growth are expected in 2022, with construction growth forecasted at around 3 per cent, but the forecast over the next ten years continues to be far below the vast growth experienced in the 2000’s and early 2010’s. There is continued focus from the government to attract foreign direct investment (FDI), which will target manufacturing to support the non-residential sector, particularly auto manufacturing, and growth in tourism is expected to further boost construction of hotels and attractions.

Meanwhile in Mexico, relationships with the US and Canada provide the most economic opportunities. The automotive sector continues to be critical for the non-residential construction market, with further opportunities available regarding manufacturing and the integration of supply chains with the US. As for residential construction, strong population growth and enhanced incomes supported by increased migration, will all provide a boost in demand for housing stock.

In Chile, civil engineering is the leading construction sector due to its vast mining sector, most notably, copper mining. With the considerable increase in copper demand because of the electric revolution and significant price increases, major investments are being made in increasing the capacity of copper mines across the country.

Europe

Construction in Europe rebounded in 2021 from the decline in 2020, boosted by financial support from the EU. The construction industry saw a 1.5 per cent increase in 2021, following a 6.2 per cent drop in 2020, with the 27 member states benefiting from a €2.018 trillion stimulus package introduced in response to the economic damage caused by the pandemic.

The regional economy was projected to grow 3.9 per cent in 2021, with an improved external demand and higher industrial commodity prices offsetting the negative impact of new coronavirus cases.

According to the World Bank, Global Economic Prospects (2021), growth in 2022 is expected to remain at 3.9 per cent, as the recovery in domestic demand gains traction. However, the regional outlook still remains uncertain, with uneven vaccine rollouts and the withdrawal of macroeconomic support measures slowing regional recovery. With the tightening of external financing conditions, growth may be further impeded if the pandemic prolongs, or if political tensions rise further.

Of the €2.018 trillion announced in the EU’s 2021-2027 long-term budget, around €807 billion has been allocated to the Next Generation EU (NGEU) fund in the form of loans and grants between 2021-2023. A key aim of the fund is to support the EU’s target of reaching climate neutrality by 2050.

With particular focus on greener infrastructure projects, digital transformation, EV recharging networks and investments in renovation of older buildings to become more energy efficient.

Generally, the construction industry’s strength is coming in the form of housing projects, while overall civil engineering works have reported a modest increase. However, the cost of materials is increasing at a record rate, putting pressure on builders’ overall profitability moving forward.

Africa

Although Africa’s overall growth is expected to be moderate across its 54 nations, it remains one of the fastest growing continents. Countries such as Ethiopia, Ghana and Côte d’Ivoire are three of the fastest growing economies globally in terms of increased GDP. Africa’s growth is further helped by several East African countries contributing collectively through increased exports and cross-border trade to grow the region’s economy.

In 2020, Africa’s construction projects were estimated to be worth circa USD 400 billion, with the industry expecting to register a CAGR of 7.4 per cent from 2021-2026, according to Mordor Intelligence.

Growth in residential, commercial, industrial and institutional construction sectors is expected to remain subdued due to the ongoing impacts of the coronavirus pandemic. Short-term investments are expected to be driven by government spending in the infrastructure sector, with the overall long-term outlook continuing to remain positive due to the attractiveness of Africa for its foreign direct investment.

With Africa continuing to grow, there is a steady increase of larger infrastructure and construction projects coming to market for the needs of over 1.2 billion people, which is expected to provide further opportunities for investment and service providers for 2022 and beyond. The key focus areas will be the diversification of the economy, Public Private Partnership (PPP) projects, and the development of new infrastructure to meet the needs of its fast- growing population.

In 2022, growth is expected from the strengthening of global activity, improved international control of the coronavirus pandemic and strong domestic activity from agricultural commodity exporters. However, recovery is expected to remain fragile due to the slow pace of vaccinations in the region. Furthermore, due to the pandemic, tens of millions are estimated to have fallen into extreme poverty.

Other challenges include further food price increases, which could worsen food insecurity, conflicts and rising tensions and ongoing logistical impediments.

Asia

Growth was expected to accelerate to 7.7 per cent in 2021, mainly reflecting China’s strong rebound form the pandemic downturn. It is estimated that output in two thirds of the region will continue to remain below pre-pandemic levels until 2022, according to the World Bank, Global Economic Prospects (2021).

Potential growth is expected to remain dampened, particularly to the economies that have experienced extended outbreaks of the virus and prolonged shutdowns to global trade and tourism.

China continues to be the largest construction market in the world and its core demand for materials is recognised as a key contributor to the increases of global commodities prices. Aside from the challenges of the pandemic and increased commodity prices, the financial viability of the country’s markets have dampened the overall growth outlook, as the liquidity crisis of one of its largest property developers, continues to unfold.

Construction and infrastructure remain a key economic driver for ASEAN countries, which have been reported to accelerate the development of infrastructure, affordable housing and sustainable, green projects following the recovery from the pandemic.

Risks to the region’s recovery include, delayed vaccination programmes, the potential of repeated large-scale coronavirus outbreaks, increasing financial pressures caused by increased levels of debt, declining investment due to the risks and barriers associated with operating in the region and eroding human capital. Furthermore, the threat of disruptions from natural disasters is a constant risk for many countries, particularly island economies.

Despite the risks known across Asia, the longer-term growth projection remains on a positive trend.

Australasia

The Australian building and construction market is bouncing back, according to the Australian Construction Industry Forum. Growth is set to exceed expectations, attributed to Australia’s ability to control the spread of coronavirus through an extensive range of policy measures designed to provide rapid recovery.

In 2021, the construction market was forecast to grow by 2.7 per cent, which was expected to reach $243 billion in building and construction work. The building of new houses will see an impressive 10 per cent growth during the year, and this will be driven by an accelerated house demand. In addition, this will also be supported by record low interest rates, government support programs, such as HomeBuilder, and an improving opportunity for sustained employment growth.

Spending on infrastructure across areas such as electricity supply, water and railways, are expected to benefit from increased infrastructure delivery programs from the governments, with increased government spending and investment in social infrastructure and essential services.