Overall, global construction is likely to remain strong in the remainder of 2023, driven by an increased number of construction projects worldwide.
This assertion is supported by the growing demand for heavy machinery and commodities. Even though the world is still recovering from the COVID-19 pandemic, global construction is being revitalized by government financial support.
However, in the case of Europe, the war started by Russia in Ukraine, has resulted in a major economic slowdown. Similarly, increased interest rates and the high likelihood of recession in the U.S. could have a negative impact on the building sector in America.
Strong heavy machinery demand in the US.
2023 is shaping up to be a strong year for the construction industry in the U.S. This is confirmed by the demand for heavy machinery, one of the leading indicators for the sector.
During a June interview at ConExpo in Las Vegas, Caterpillar CEO Jim Umpleby expressed a positive outlook for his company. His optimism was due to an increased number of new construction projects this year.
Recently, the U.S. government offered manufacturing companies sizable subsidies to incentivize the building of production facilities for goods used in the clean energy industry. The subsidies extend to semiconductors and electric cars as well as other products. One of the main reasons for these subsidies has been the growing competition between the United States and China in the development and production of renewable technologies
Regardless of the increased demand for construction machinery, the industry is concerned about a potential economic slowdown resulting from tighter monetary policy.
Although Caterpillar had a strong first quarter of 2023 due to favourable price realization, it is possible that a weak second half of the year may follow. However, the company’s top management firmly believes 2023 will turn out to be a strong year for its U.S. operations overall.
International construction outlook for rest of 2023
At the same time, China is experiencing a relative slowdown in the growth of its construction industry. This year, the country’s construction sector is expected to grow by +2.7% compared to +4.4%, as was projected by BusinessWire at the beginning of 2023. This easing is mostly happening because of a decline in residential construction activity.
The drop in residential construction is due to a government crackdown on real estate developers and shadow financiers. Special government action has been taken to decrease property speculation and lower household debt. These measures have caused a decline in investment in residential real estate, not only from households but also from property developers and banks.
Despite this slowdown, steady growth of the construction sector in China is anticipated for the second half of 2023.
As Chinese growth has slowed, India has accelerated its economic activity and become a major player in global construction. Throughout 2023, the Indian construction industry is expected to grow at a handsome +5.0% annual rate rather than +5.2%, as was originally projected by GlobalNewsWire. The change in the forecast was due to a decline in foreign investment because of slowing economic growth worldwide. Despite the reduced inflow of international capital, the growth in the Indian construction sector will be fuelled by the completion of major projects funded by government.
With more funds allocated to the construction of new highways and railways, Indian government spending on the construction industry will grow to INR 45 trillion (US$561.6 billion) in 2023 from INR 41.9 trillion (US$522.2 billion) in 2022. In addition, increased demand for green construction, the development of new technologies, gaining access to remote worksites, modular construction and reusing construction equipment have become important drivers of growth.
Global demand for cement in 2023 also confirms strength potential
A strong construction outlook for the second half of 2023 is also supported by a solid demand for cement. An annual growth of +3.3% is anticipated for the global cement industry, with Asia-Pacific countries predicted to be on top, specifically China and India.
In the latter country, the increase in infrastructure funding and growing stability in the urban housing market will lift cement demand. Also, Indian manufacturers plan to increase the construction of commercial and residential real estate. Plus, government spending on infrastructure will also support consumption.
Outside of these countries, the outlook for cement demand is more varied. The demand in the Middle East is projected to increase too, due to the forecast growth in public works projects in Saudi Arabia. Continuing work on the “smart city” of Neom in the northwest of Saudi Arabia and other projects in the country are expected to make it the region’s top cement consumer.
Unlike the Middle East, cement consumption could decline in Europe this year due to the consequences of the Russia-Ukraine war and related recession concerns.
Dmytro Konovalov has over 10 years of experience in equity research and analysis for global markets at leading international financial institutions.
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