Global construction prospects 2024

This review is for the period covering 2023 to 2027, analyzing anticipated construction growth during this time.

The global construction market is expected to reach USD 15.46 trillion in 2023 from USD 14.50 trillion in 2022 at a compound annual growth rate (CAGR) of 6.6 per cent. The market is expected to reach USD 19.52 trillion in 2027 at a compound annual growth rate (CAGR) of 6 per cent, according to the Business Research Company.

The RICS Global Construction Monitor for Q3 2023 outlines that activity across most markets showed modest growth in headline industry output, with the majority of growth seen within the infrastructure sector. Activity across private residential and commercial markets was seen as flat, almost negative.

It is noted that activity in Europe is down in comparison to other global regions, however activity across the Middle East region saw firm growth. Across the APAC region, markets within India and the Philippines saw robust growth, however, the RICS Global Construction Monitor for Q3 2023, reported a further easing in Singapore. It is also reported that markets in Australia, New Zealand and Sri Lanka expect some growth in private sector activity.

Consistent with emerging trends over the past number of years, the impact of higher interest rates and rising costs are still seen as the main issues encountered across global markets.

North America

GDP from construction across the main economies is expected to reach USD 682 billion across North America, with the US accounting for USD 570 billion. For the US market, this equates to circa 2.20 per cent of all GDP generated from within the US economy. The remaining output value of USD 112 billion relates to the Canadian market, which accounts for 5.14 per cent of total Canadian GDP.

A recent GlobalData review outlines that the US dominates the North American construction market, ahead of Canada when comparing output values. It is reported that the US market is anticipated to grow by 3.6% CAGR over the forecast period of 2024-2027.

In addition, GlobalData outlines that the US construction market was valued at USD 2.1 trillion in 2022 and is projected to achieve an average annual growth rate (AAGR) of more than 4 per cent during 2024-2027, mostly across energy, transportation, housing and manufacturing end markets. However, it is also reported that due to ongoing inflationary and interest rate factors, coupled with shortages in available labour, the US construction industry is anticipated to show a decline in real terms in 2023.

GlobalData continues to report that the Canadian construction market was valued at USD 349.1 billion in 2022 and is projected to achieve an AAGR of more than 1 per cent during 2024-2027 with end markets such as energy, commercial, residential and education underpinning growth.

Similar to the US market, the Canadian construction market is also expected to show a decline during 2023 on the back of sharp falls in the residential end market sector due to tightening monetary policies and a weaker economic outlook. According to the same GlobalData review, the Canadian market will also be impacted by high construction costs and shortages in skilled labour, leading to a decline in activity during 2023.

Latin and South America

GDP from construction across the main economies is expected to reach USD 93.3 billion across Latin and South America, with Mexico accounting for USD 80.8 billion. This equates to circa 5.71 per cent of all GDP generated from within the Mexican economy. Chile accounts for USD 3.7 billion of the overall construction market (1.21 per cent of GDP). Peru accounts for a further USD 2.8 billion (1.17 per cent of GDP), with Brazil contributing USD 3.2 billion (0.17 per cent of GDP). The construction markets of Colombia and Argentina make up the remaining output of the region’s main economies.

Economic growth across Latin America and the Caribbean is expected to decline from 3.7 per cent in 2022 to 1.5 per cent in 2023. Similar to other global regions, the local economies have been impacted by rising interest rates with inflation running above targets. According to the World Bank, Global Economic Prospects Report (2023), the main risks include slower growth within the economies of trading partners, in addition to ongoing and tightening monetary policies. Climate change and the impact of adverse events also pose a risk across the region.

According to the World Bank, Global Economic Prospects Report (2023), it is envisaged that metal prices will remain broadly stable. However, agriculture and energy prices are projected to be lower than last year.

Looking closer at Brazil, as the main economy in the region, it is expected that growth will slow to 1.2 per cent in 2023 before rebounding to 1.4 per cent in 2024, according to the World Bank, Global Economic Prospects Report (2023). The same report also outlines that uncertainty about fiscal policy continues to harm business confidence and investment.

Economies within the Latin America and Caribbean regions are expected to recover in 2024, with a growth of 2 per cent projected by the World Bank.

GDP from construction across the main economies is expected to reach USD 191.9 billion across Europe, with Germany accounting for USD 62.8 billion. This equates to circa 1.54 per cent of all GDP generated from within the German economy. Following Germany, the UK accounts for USD 39.7 billion of the overall construction market (1.29 per cent of GDP). France accounts for a further USD 28.7 billion (1.03 per cent of GDP), with Italy contributing USD 22.9 billion (1.14 per cent of GDP). The construction markets of Spain, Turkey and the Netherlands make up the remaining output of the region’s main economies.

The economic growth rate within Europe is expected to remain weak at 1.4 per cent during 2023, according to the World Bank, Global Economic Prospects Report (2023). As reported in 2022, economic performance is significantly impacted by events in Ukraine, as well as rising interest rates and inflation challenges.

The same report outlines the risk associated with any worsening of the conflict between Russia and Ukraine and a continuation of inflation patterns across the region during 2024. The World Bank, Global Economic Prospects Report (2023) also identifies other risks to economic growth in Europe, such as any possible adverse weather events associated with climate change and the risk of energy insecurity linked to ongoing conflicts.

As reported by the World Bank’s same above-mentioned report, if inflation remains high central banks may continue to rise interest rates which may in turn lead to lower than expected economic growth across the region on the back of higher borrowing costs.

According to a recent RICS Global Construction Monitor publication, it is noted that recent surveys indicate a decline across the industry, due in part to lower economic growth and a tightening of credit conditions across the region. The same report outlines that the Construction Activity Index fell to -9 during Q3 of 2023, down from -1 during the preceding quarter.

Economies within the region are projected to grow by 2.7 per cent in 2024, dependent on the ongoing conflict in Ukraine, as projected by the World Bank.

Africa

GDP from construction across the main economies is expected to reach USD 10.1 billion across Africa, with South Africa accounting for USD 5.9 billion. This equates to circa 1.46 per cent of all GDP generated from within the South African economy. Following South Africa, Tanzania accounts for USD 2.2 billion of the overall construction market (2.89 per cent of GDP). Nigeria accounts for a further USD 1.0 billion (0.20 per cent of GDP), with Kenya also contributing USD 1.0 billion (0.92 per cent of GDP). The construction markets of Angola and Ghana make up the remaining output of the region’s main economies.

It is projected that growth will decline to 3.2 per cent in 2023, according to the World Bank, Global Economic Prospects Report (2023). This is mainly due to high inflation, higher borrowing costs and external global factors.

The same report outlines that some economies in the region are still recovering from the pandemic, with the burden of higher living costs adding to the already difficult economic position of many nations. It is feared that risks such a global economic slowdown, lower trade amongst partners, continued high inflation, coupled with financial distress in advanced economies, and more adverse weather events would not only subdue economic growth, but also increase the potential of poverty across the region.

The World Bank, Global Economic Prospects Report (2023) also outlines that commodity prices may remain volatile should supply chain issues persist and/or if global geopolitical events continue and/or escalate.

The main economies within the region, Nigeria, South Africa and Angola, are projected to grow by circa 2.1 per cent across 2023-2024, as predicted by the World Bank.

Asia

GDP from construction across the main economies is expected to reach USD 1.477 trillion across Asia, with China accounting for USD 1.201 trillion. This equates to circa 6.68 per cent of all GDP generated from within the Chinese economy. Following China, Japan accounts for USD 192 billion of the overall construction market (4.54 per cent of GDP) and India accounts for a further USD 39 billion (1.15 per cent of GDP). Indonesia accounts for USD 20 billion (1.50 per cent of GDP), with South Korea contributing USD 17 billion (1.02 per cent of GDP). The construction markets of Kazakhstan, Malaysia and Cambodia make up the remaining output of the region’s main economies.

According to the World Bank, Global Economic Prospects Report (2023), economic growth in the region is expected to slow in 2023 to 5.9 per cent.

Like many other global economies, the main underlying risks to economic prospects in the region lie in a global slowdown across major economies, and in particular, the risks associated with monetary policy tightening or banking sector stress.

Other notable risks identified within the same report relate to social tensions arising from food insecurity and extreme weather events related to climate change. Consequently, the World Bank, Global Economic Prospects Report (2023) outlines that should such events occur, then the economic and humanitarian crises across many nations, in particular within Afghanistan and Sri Lanka, could have a greater impact.

According to a recent RICS Global Construction Monitor publication, it is noted that recent surveys indicate that India and the Philippines are performing strong with regional Construction Activity Index in the order of +60 during Q3 of 2023, with both countries experiencing growth across most market sub-sectors. It is also noted that the construction market in Malaysia is performing well, but at lower levels in comparison to India and the Philippines.

Despite global challenges, the economies within the region are projected to grow by 5.1 per cent in 2023, as projected by the World Bank.

Australasia

GDP from construction across the main economies is expected to reach USD 29 billion across Australia and New Zealand, with Australia accounting for USD 26 billion. This equates to circa 1.54 per cent of all GDP generated from within the Australian economy. The remaining output value of USD 3 billion relates to the New Zealand market, which accounts for 1.23 per cent of total New Zealand GDP.

According to the Business Research Company, activity within the Australian construction market is expected to show a decline during 2023 by 2.6%. As with most global construction markets, growth prospects are being affected by high levels of inflation, rising interest rates and associated financing costs. which are in part leading to increased construction costs. Furthermore, it is reported that there has been a decline in new building permits, indicating a general slowdown in activity. The same review from the Business Research Company outlines that the construction market in Australia is expected to show an average annual growth of 3.1% during the period of 2024 to 2027.

In relation to the New Zealand market, the Business Research Company review outlines that the market is expected to grow by 3.6% in 2023. Underpinning the growth prospects of New Zealand are the efforts required to rebuild damaged infrastructure, such roads, rail and schools, and provide flood protection following the cyclone earlier in the year. Despite this, the same review from the Business Research Company outlines that the construction market in New Zealand is expected to show an average annual growth of 2.6% from 2024 to 2027.

According to a recent RICS Global Construction Monitor publication, it is noted that workloads across the region, in both the private and public sectors, are expected to show some recovery in the 12-month period from Q3 2023.

International construction cost inflation

Source: Based on AECOM Indices for UK, UAE; ENR USA Construction Cost Index; Singapore Building Construction Authority, Hong Kong Architectural Services Dept (Public Sector), Euroarea Eurostat Construction Output Index, India CIDC Construction Cost Index, AIQS Building Cost Index.

As the cost of construction resources and materials rise and economic instability persists, 2023 witnessed notable increases in construction costs worldwide. On the previous page, the chart illustrates the quarterly fluctuations in construction costs across various global indices.

The data reveals that the global impact of construction inflation became evident around early 2021, coinciding with the economic and supply chain disruptions caused by the pandemic.

While there are anticipations that price surges will moderate further in 2024, the construction sector is experiencing varying levels of growth and pace in different countries. Even as overall construction activity remains on an upward trajectory, there is a discernible divergence in output and project timelines across nations.

Both ongoing and future construction endeavours are grappling with the ramifications of this escalated cost scenario. Newly initiated projects are encountering challenges in terms of financial feasibility and budgeting, especially those on the brink due to the prevailing inflationary conditions. Capital-intensive projects, given their inherent risks and budgetary constraints which affect both public and private domains, are likely to confront increased obstacles in 2024.

Projects that are in advanced stages might be relatively insulated from immediate impacts, thanks to existing financial commitments and established project viability. Nevertheless, the overarching financial strain, combined with inflationary pressures, could still permeate these ventures, affecting their subsequent phases.