There is no disputing the economic about-face that took place in 2022. But in looking ahead through 2023, the impacts of the various financial measures taken and the global economic slowdown remain unknown.
“Growth in the global economy is set to continue to slow in 2023, reflecting high inflation and tightening financial conditions,” says Danny Richards, Lead Economist at GlobalData Construction. “Although the consensus view is that there will be a mild recession in the U.S. economy, the outlook is highly uncertain. Policymakers are facing a delicate balance in efforts to contain inflation without choking investment growth.”
As policymakers dance that tightrope, the construction industry faces additional challenges such as high material costs, labor shortages, and others.
Despite the increasingly gloomy backdrop, GlobalData projects that global construction output will grow in 2023, albeit just 1.8%. Looking ahead to 2024, global economic activity could begin to stabilize, allowing the construction industry to regain some growth momentum.
How did we get here?
GlobalData provides industry analysis that enables decision-makers to decode the future of the world’s largest industries, including construction, oil and gas, power and mining. For the construction industry, GlobalData is currently tracking developments in over 200,000 construction projects globally from announcement through to completion, including regular updates on project developments and the key companies involved. GlobalData also provides analysis and five-year forecasts for the construction industry in 90 major construction markets worldwide.
In studying the U.S. market specifically, Richards says the construction industry has had a particularly challenging period in recent quarters, with output in real terms estimated to be down by 7% in 2022 as a whole. That primarily reflects weakness in the infrastructure and non-residential sectors (excluding industrial). Heading into 2023, the picture is almost completely reversed.
“The U.S. residential sector will weaken, with the recent boom set to come to an end amid rising interest rates,” Richards points out. “However, the infrastructure sector will start to pick up as funding under the IIJA (Infrastructure Investment and Jobs Act) is disbursed. That should help offset the downturn in residential spending.”
The net impact of the shift in U.S. construction spending remains to be seen and will be impacted by many other factors, hence the high level of uncertainty that still surrounds 2023.
Globally, investment in the infrastructure, energy, and utilities sectors remains a major driver of overall construction output growth. These sectors expanded in 2020 despite COVID-19 disruptions.
“Growth is set to remain strong, particularly given major investment programs in the U.S. and China,” Richards says. “However, supply-side issues remain a key risk to project momentum, as soaring material prices have delayed work and imposed large cost hikes. Governments are also facing higher borrowing costs, which could hamper spending on publicly funded infrastructure development programs.”
Globally, residential construction had generally recovered well from the downturn in 2020 amid the COVID disruption. Government incentive schemes and a buildup of household savings helped drive up residential building work, particularly on the renovation side to improve energy efficiency.
“With rising interest rates and a squeeze on household incomes from the rising cost of living, as well as homebuilders having to pass on the surge in construction costs, growth in the residential sector slowed sharply in 2022,” Richards says. “Now it is set to be constrained in the coming quarters.”
Richards will be discussing the global economic picture in further detail, including the many factors helping to influence various outcomes, at his upcoming IFPE educational session, Economic Trends in the Industry. The session will take place Tuesday, March 14 from 10:45 to 11:30 a.m. at the Las Vegas Convention Center.
“With demand for construction equipment tied to investment trends and output in the construction industry, this session will set the scene for opportunities and risks in the industry in the coming years,” Richards says. “The session will initially provide an overview of key developments in the global economy and how the construction industry is performing. The outlook for the industry in all major regions will be reviewed, followed by a specific focus on the outlook for the U.S. construction industry. This focus will feature analysis of what is in store for the main sectors: infrastructure, energy, residential and non-residential buildings.”
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About the speaker
Based in London, Danny Richards is the lead economist at GlobalData Construction. He leads a large team of analysts and economists that focuses on keeping clients up-to-date on the latest developments and outlooks for major markets. He has over two decades of experience in economic and industry analysis, previously working for the Economist Intelligence Unit and the UK Government Economic Service.
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