HIGH RISK for entreprises
After 2018's strong growth but heightened uncertainty, 2019 will be a denouement year; it will lead to a soft landing of the world economy.
Brexit is proving much harder to tame than a Shakespearian shrew. As expected, the UK House of Commons rejected Prime Minister (PM) Theresa May’s Brexit deal.
At +1.5%, the economy last year recorded its weakest GDP growth since 2013. Domestic demand was the main growth driver in 2018. Private consumption grew by a moderate +1% in real terms.
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
Contact Euler Hermes
Economic Research Team
Sector Risk Analyst