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Industry Analysis- Civil Engineering
The global construction industry grew at a moderate rate in 2013, powered primarily by the developing economies of the Asia-Pacific region, particularly Japan and India, which both experienced strong growth. Comparatively, in Europe the situation was far from ideal, as declines were seen in many economies throughout the region. Strong global growth rates are expected in coming years as some of the developed nations return to more stable growth periods. The Asian market looks set to continue growing at a strong rate, while Western industries appear on the precipice of a long awaited rebound, which should make growth relatively stable and consistent over all. The construction industry, despite a few bad areas, is looking healthy over all.
The global construction industry grew by 3.3% in 2013, to reach a value of $6,287bn, resulting in a compound annual growth rate (CAGR) of 4.6% for the years 2009-2013. The main performing regions are South America and Asia, whilst Europe and North America are struggling. Weak macro-economic conditions have severely affected the sector across most European countries, exacerbated by the restructuring and recapitalization of financial institutions. The result has been tighter lending criteria, which has restricted the availability of mortgage finance from financial institutions, meaning many consumers are unable to obtain a loan. This is compounded by the threat of rising unemployment, which is likely to make consumers more risk averse, dampening demand for new homes.
In response to sluggish or negative growth in their home markets, a number of large European incumbents have made strides toward diversifying their operations in recent years, pursuing deals to take on responsibility for operating the facilities and infrastructure that they have constructed. The French market leader VINCI SA is a prime example.
Elsewhere, state-backed Chinese companies have grown rapidly over the last decade, overtaking their Japanese rivals, and have come to dominate the global rankings in terms of construction industry revenues. These companies are increasingly looking to expand operations overseas, and now face a new challenge: government contracts in China regularly provided comfortable “cost plus” terms; international contracts offer no such luxury. China’s large incumbents have proven their ability to round off projects on time. They must now show that they can also manage costs.
With regards to the homebuilding segment, in China concerns over a property bubble, most readily observable through rapid increases in property prices in recent years, have led the Chinese government to intervene in an attempt to limit excessive lending. On this basis, price growth is likely to be constrained over the next year. However, significant regional variations are likely to occur given the size of the country.
Finally, demand has been boosted in some geographies in recent years by the sporting
events calendar. In Brazil, where the civil engineering and non-residential building sectors have recently achieved (and are projected to continue delivering) healthy growth, strikes and protests erupted in around 20 cities. Participants were broadly united by the perception that public money was being squandered on construction for the 2014 World Cup. In Japan, reconstruction efforts following the 2011 earthquake and tsunami have continued, and are also bolstered by government spending in anticipation of the 2020 Summer Olympics in Tokyo. Here, though, output is limited by the capacity of the Japanese construction industry, with shortages of skilled workers and raw materials negatively impacting growth.