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Residential property leads construction

After a slow 2016, global construction investments expecting to accelerate in the next two years

by Luca Agolini, Prometeia

In 2016 growth of construction industry has remained weak at a global level, in line with the evolution of the international economic activity. Forecasts on an actual cost basis indicate for 2016 a 2% increase in global construction investments: an unchanged value from 2015, but definitely lower than the values registered in the years 2011-2013 (around 3/4% per year). The overall result arises from a number of factors: an acceleration in the Far East (+4.4%), Northern Africa and the Middle East (+3.8%) and in Western Europe (+2.2%); the Gulf’s and especially Nafta’s economic slowdown (+2.4% and +0.5% respectively); Latin America’s (-3.6%) and Central and Eastern Europe’s (-2%) still negative trends. The latter areas have been affected by a prolonged (though less intense) crisis in construction in the respective main markets (Brasil and Russia), as well as by public investments correction in Central European countries, after the initial push made by EU structural funds over the years 2007-2013.

Grafici

Western Europe has witnessed strong investment recovery in Germany (+2.4%), thanks to residential construction’s driving force, a slow restart of the construction cycle in France (+1.2%) and the consolidation of the Spanish market slow recovery (+2.3%), though not quite at pre-crisis levels. In the UK, after an initial moment of panic that has involved a few real estate funds, the dreaded effects of Brexit on the industry have not materialized yet, and forecasts see residential investments increasing by slightly more than 3% (+0.2% for total construction).
Asia witnesses the slowdown of the Indian market: in 2016 growth of investments have stopped at around 4% (it was over 5% in 2015), mainly because of delays in the already planned infrastructure projects, of difficulties within the credit system and a less dynamic real estate market in the residential sector. The acceleration of public spending in infrastructure and signals of recovery in the residential market have, on the other hand, fostered a slightly greater dynamic of expansion (+4.5%) in Chinese construction.
As to activity sectors, residential construction performed rather better (+3.6%) than other sectors (non-residential, public works office). In the United States in particular the residential sector decreased substantially, from around 12% in 2015 to little more than 4%, due to enhanced restriction to housing supply and enhanced property price.

The economic situation in the near future
Prospects for 2017-2018 look more auspicious, with global construction investments expected to rise by 3.5% a year. The Gulf countries are expected to act as the most dynamic area in the world, with investments expected to reach 5% a year after the slowdown during the two previous years. The Arab Emirates are expected to act as the main driving force under the impetus of planned projects both in residential and non-residential construction, also with a view to Expo 2020 Dubai; a greatly positive economic outlook is expected in Iran after the lift of economic sanctions and the opening to international markets.
In Northern Africa investments are expected to register a rather vivid growth (at around 5%), though they will depend on whether the uncertain political climate stabilise, and especially on whether the Libyan market gets relaunched; in addition to Libya, Egypt and Morocco are expected to act as the most dynamic markets, compared to moderate growth forecasted for the other countries. In addition to infrastructure projects, a further push to the industry will be coming from social housing planning.
In the Far East the construction industry is expected to settle at around 4% a year, even if with differentiated performances. In India, after the temporary slowdown of 2016, investments are expected to rise significantly; growing rate will top 7% in the next two years, also in light of the fact that the government has set infrastructure development as one of its priorities. Among other potential markets for the building industry: Indonesia, the Philippines, and Malesia. In China, on the other hand, the somehow lower public spending on infrastructure and the effects created by measures aimed at cooling down the property market should turn into milder investment growth, approximately 4% a year.
Among emerging areas, construction is expected to rise also in Latin America (+3.3%) and Central and Eastern Europe (+3.2%); in the latter region, besides the gradual recovery of Russia’s building industry, a great contribution will be given by the relaunch of public works in the Central European countries, with the new EU funding programmes starting.
The expected recovery within the Nafta area, after a slow down in 2016, will mainly be driven by the United States, that will see considerable growth in all activity sectors. Growth in residential property is expected to consolidate at around 4% a year, still fostered by favourable conditions for housing demand (higher salaries and employment rate, and the creation of new family units); the normalization of US monetary policy, especially in the event that interest rates should rise more abruptly than expected, is the main risk factor, creating less favourable conditions as far as credit is concerned. Non-residential construction is expected to restart; and infrastructure spending too is expected to accelerate, in particular from 2018, when the investment plan announced by the Trump administration should be, at least partially, implemented.
Western Europe will undergo a less dynamic growth compared to other world areas (slightly over 2%); Germany will still be one of the driving forces, its market expecting to further grow, though at lower levels, while a further push will come from the revival of the French building industry. Sole exception: the slowdown forecasted for the British market (especially in non-residential construction), caused by the uncertain outcomes of Britain leaving the EU, which could partly be contained by the Fiscal policy, aimed at relaunching infrastructure investments (over 20 billion pounds allocated starting from 2017).

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