Construction Sector Report & Market Analysis

Positive demand picture vs structural challenges

H

HIGH RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • Strong infrastructure backlog
  • Stimulating impact of new environmental standards in mature markets
  • High urbanization growth rate
  • Working capital pressures in the context of demand improvement
  • Raw material prices volatility
  • Sensitivity to business cycle

What to Watch?

  • Rise of infrastructure investment in Europe, the US, China and India and $1.5tn  Trump infrastructure plan advancement through Congress
  • Wage pressures coming from skilled labor shortage

In 2018 worldwide turnover of construction companies is expected to increase by +3.2% y/y compared to a +2.4% y/y growth in 2017. 

The positive dynamics has some regional differences. Companies in the US benefit from the strong demand, as well as those in Europe with the exception of UK, where the industry experiences the after effects of the EU exit. The demand improvement is also noticeable in all of the BRICS countries. However, Brazil is an exception, due to potential volatility stemming from the October 2018 elections. 

The growth gap between the emerging and the developed world has tightened (growth difference in 2017 was less than 1% vs close to 5% in 2012). This trend is expected to continue with increasing appetite for infrastructure investment in the developed parts of the world. The global infrastructure backlog until 2030 is close to $1tn (excluding Trump’s infrastructure plan), which will support orders in both construction and metals sectors. 

The dark spot remains in the sector’s structural weaknesses. The companies face headwinds from raw materials price variation and long payment delays (construction is among top-3 sectors with the worst payment terms worldwide).

Operations: Drone technology has gained in importance as a significant cost cutting tool over the recent years. The sector keeps its lead as the largest target industry for the drone manufacturers 

China: Highways remain the main focus for China’s transportation sector. Southern China is expected to be the primary beneficiary of the highway spending plan and cement producers with the exposure to South China will benefit

Key players

Country Role Sector risk
China

#1 producer

#1 exporter

C

High risk

United States

#1 importer

#2 producer

A

Low risk

Japan

#3 producer

#3 importer

B

Sensitive risk

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DISCLAIMER

These assessments are, as always, subject to the disclaimer provided below.

 

This material is published by Euler Hermes SA, a Company of Allianz, for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by Euler Hermes and Euler Hermes makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the Euler Hermes Economics Department, as of this date and are subject to change without notice. Euler Hermes SA is authorised and regulated by the Financial Markets Authority of France. 

 

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