World Review - construction update

Posted March 2010

As the world shows early signs of recovery from the worst economic downturn for over 70 years, our latest review takes a closer look at some local construction markets.

Industrial Building Parities/Index, USA Base

Index: February 2010

USA

The construction industry will continue to suffer from the effect of the recession in 2010. Unemployment is currently running at about 18%. Construction put in place will be down about 3% this year after falling 15% in 2009 and 7% in 2008. Residential construction, which typically leads a recovery, could increase about 4% this year after falling 14% last year after a 29% in 2008. The non-residential segment will be down about 6% in 2010.

Many segments will continue to see significant declines, but health care and education should be some of the better non-residential market segments this year.

Canada

From mid-2009 to early 2010, non-residential construction in Canada has experienced moderate forward momentum in the volume of new work. Federal and provincial government stimulus spending in the education, health and infrastructure sectors has resulted in early starts for smaller projects and a steady number of projects currently in various stages of design will enter the market in 2010.

Residential construction has not recovered significantly since the steep fall in output that occurred in late 2008. Residential construction in 2010 is unlikely to expand unless lending policies are revised to provide more funding to builders and to consumers. Labor and material costs are stable and are not anticipated to fluctuate in the near to mid-term.

Mexico

Construction industry output fell 7.5% in 2009 due to the global economic crisis. Private investment will continue avoiding risk conditions, so public projects are the other option to recover activity in 2010. The approved government budget for this year includes MXP 598 billion for the construction sector - 45.8% for Oil and Gas and 12% for communications infrastructure. However, the year begins with the funding flowing too slowly and contract award delays. The forecast for domestic construction Gross Internal Product (GIP) in 2010 is 2.3% growth, assuming an upturn in activity at the end of the first semester. Construction employment will grow 3.2%.

United Kingdom

Construction prices have fallen approx 16% from the peak of 4^th quarter 2007, with recovery in the Tender Price Index (TPI) not expected until 2^nd quarter 2011. New work output fell by approximately 13% during 2009 with the construction continuing to be hit hard as the UK economy spent the whole of 2009 in recession.

Recovery in the sector is likely to be led by private invested works as public funded works is expected to be cut back as the UK seeks to deal with the level of public debt. The private residential and commercial sectors have shown increases in output in the last quarter of 2009 with all public sector works seeing a reduced output to previously reported figures. The recovery of the construction industry is however showing signs of stalling as the country prepares for an election, anticipated in May 2010.

China

China's foreign inward investment has been in free fall as overseas companies were hit by the global downturn and cut their spending. But increased inward investment and increased energy usage are the latest evidence that the country's economic recovery is gaining momentum.

There has also been a strong rebound in the domestic economy, fuelled by the government's stimulus package (GBP 357.6 billion), which has boosted demand for steel, cement and other materials. Confidence in China as a top investment location is beginning to return, and we expect this to encourage foreign companies to continue their investment in China, taking advantage of its stronger economic growth compared with other countries.

Singapore

The Singapore economy resumed expansion since the 3^rd quarter of last year. This greatly helped the sentiment in the property market generally, especially when the regional power house of China is registering large percentage growth figures. The construction industry provided Singapore with some growth over the last two years during which time the overall economy was contracting.

The residential market is now in robust good health and the government just introduced new measures in an attempt to cool some of the speculative pressure in the market. This improved sentiment is translating into new projects being launched and keen bidding for plots of land as they become available.

A number of big construction projects, notably the two iIntegrated resorts incorporating the first two casinos to be built in Singapore, refinery expansions by Shell and Exxon Mobil and big investments in industrial plants such as the photovoltaic plant being built by REC, have been completed or are approaching completion quickly. However, with the on-going projects and the new investments being made, there is still a healthy amount of work in the market

UAE

The turbulent end of 2008 ushered in 2009 that continued briefly downwards, culminating in an overall 40% drop from the 2008 peak. Prices began to stabilize in mid-2009.

This year began with the grand opening of the world's tallest building - Burj Khalifa, one of the region's most striking buildings. However, the outlook for 2010 is modest with GDP growing 2 to 4%. Abu Dhabi will drive the growth with Dubai levelling off or contracting further. Based on this and the ongoing global conditions, the construction market in the area is likely to follow the patterns of 2009, with continued pressure on prices and lower volumes of work than experienced in pre-2009.