The global construction industry is well into its COVID-19 recovery, spending-wise, from a low point in the first half of 2020 as the pandemic shut down construction sites and economies contracted sharply. While the industry is recovering, developed and developing countries are doing so at different rates.
Construction output in the U.K. fell almost 11% from May to July, before beginning to rebound. Richard Hill, a senior director in Currie & Brown’s London office, says that while the industry is recovering, health and safety regulations that require social distancing measures are impacting productivity, with sites generally operating at no more than 80% efficiency.
Potential consequences of Brexit also linger in the background, as the U.K. prepares to leave the European Union at the end of the year without a comprehensive free-trade deal. Hill expects construction tender prices to fall in 2020 as an immediate consequence.
Europe Stimulus Plans
Mainland Europe construction activity dropped by an average of 15% through 2020, with tender prices falling slightly through the year. Construction firms and governments throughout the continent are struggling with how to assign responsibility and cover added costs caused by the loss in productivity through 2020. “Due to the rather long business cycles, the impact on companies’ order books will be delayed over the next six to 12 months,” says Gaelle Damilleville, C&B marketing manager in Paris. “The European construction market is expected to see the true impact of COVID-19 in early 2021.”
Tender prices are projected to begin increasing in the U.K. in 2021 and 2022, with residential, infrastructure, health care, education and technology construction sectors leading the way as the government lays out a plan to build its way out of the pandemic-induced recession. Government rebuilding and stimulus plans in mainland Europe also will help the industry rebound. C&B will be monitoring bankruptcies across the continent’s network of small technical contractors, as high levels of business failures could put this rebound at risk.
Prior to the pandemic, we projected construction costs in Japan to rise a dramatic 11% in 2020. Rob Fuller, C&B managing director in Tokyo, however, reports just a small construction cost drop for the year. Although the industry continues to battle a shortage in skilled construction workers, he anticipates inflation remaining relatively flat into 2021. Activity and costs in Japan are expected to begin to rise again, looking forward to 2021, albeit at a slower pace than was predicted at the beginning of the year.
Most colleagues noted that construction in developing countries in their regions is struggling to recover. I see a similar trend in North America when I compare construction spending and employment in the U.S. and Mexico. Construction spending in the latter dropped sharply in March and remains the lowest it has been in years.
Before the pandemic, the Mexican Chamber of Construction Industry projected 2020 construction spending to grow around 1%; the group now anticipates a record contraction of 10%.
C&B expects the current trend to continue into 2021, with construction spending and costs remaining subdued in developing countries and beginning to rise in developed nations. The global industry will face a strained supply chain that will exert pressure on input costs, with added productivity challenges due to health regulations and distancing requirements in 2021.
The Middle East construction sector has faced headwinds not only from the coronavirus but also from the low cost of oil, which is closely tied to capital project spending. Doug McGillivray, C&B managing director in the UAE, reports that through May, oil prices of around $40 per barrel and virus impacts combined to result in construction spending in the Middle East/North Africa region declining by around 20%.
C&B anticipates that construction in Abu Dhabi and Saudi Arabia will lead regional recovery efforts in 2021, with construction costs increasing between 1% and 1.5% over the next 12 months.
While the international construction industry has faced challenges over the past nine months, C&B expects to see it regain some of its prepandemic momentum throughout 2021.