Construction to outstrip growth in manufacturing over the next 10 years: report

THE construction industry is set to lead global economic recovery from the Covid-19 pandemic, overtaking growth in the manufacturing sector in the decade to 2030.

According to Future of Construction, a forecast produced by Oxford Economics and Marsh McLennan companies Marsh and Guy Carpenter, the global construction market is expected to grow by US$4.5 trillion over the next 10 years to reach US$15.2 trillion by 2030. This is up 42 per cent from US$10.7 trillion in 2020, and 35 per cent higher than the previous decade to 2020.

From now to 2025, construction growth is projected to average 4.4 per cent, which is higher than growth in both manufacturing and services. But from 2025 to 2030, it will continue to be higher than manufacturing, but lower than services.

Asia-Pacific will account for US$2.5 trillion of the output growth, and become a US$7.4 trillion market by 2030.

Three Asian countries alone - China, India and Indonesia - will account for about 47 per cent of the growth, driven by pent-up household savings, stimulus programmes and a rise in population to more than 8.5 billion by 2030 from 7.8 billion in 2020. In contrast, North America will grow by 32 per cent and Western Europe by 23 per cent.

Stephen Boddington, construction leader at Marsh Asia, an insurance broker and consulting firm, told The Business Times that while there is still uncertainty over how the Covid-19 crisis would play out, construction would continue on a recovery path. However, he warned that climate change, along with the short supply of construction materials and labour, high shipping costs and supply chain disruptions, are near-term risks for growth of the sector in Asia.

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China will account for about 26 per cent of global output, India 14 per cent and Indonesia 7 per cent - almost the same as the combined growth of Australia, UK, France and Canada, which are the next 4 largest contributors. The US is projected to account for some 11 per cent of global output.

Graham Robinson, global infrastructure and construction lead at Oxford Economics and the report's lead author, said it was unusual to see construction outstripping growth in both services and manufacturing over a sustained period.

"But it's not surprising that construction is expected to power the global economy over this next decade, considering the unprecedented nature of stimulus spending on infrastructure by governments and the unleashing of excess household savings in the wake of Covid," he said.

India will be a powerful engine for global growth, with construction output exceeding US$1 trillion a year by 2030 and an accumulated US$7.9 trillion expected to be spent. The country is expected to overtake Japan as the third-largest global construction market by 2023.

Indonesia will overtake the UK and Germany as well as Japan to become the fourth-largest construction market in 2030, after China, the US and India. Over US$3 trillion is expected to be spent on construction in Indonesia, with the recently announced new capital city in East Kalimantan giving an added boost.

As for China, construction is expected to grow 3 to 5 per cent over the next 5 years. Residential construction is projected to remain important, but the double-digit growth boom in construction of the 2000s is unlikely to be repeated as the country matures. However, there will be construction opportunities in some of China's emerging first-tier cities and special economic zones.

Malaysia's construction sector is expected to remain subdued in the short-term despite the revival of some mega infrastructure projects such as the East Coast Rail Link project and LRT3. The sluggish property market, led by a large volume of unsold private houses amid weak housing demand combined with a high level of office vacancies, continues to be a drag on construction investment.

The Philippines will see civil engineering leading construction activity, including the country's plan to upgrade its renewable energy capacity and improvement to its road and rail infrastructure.

Residential construction activity is forecast to grow fastest globally in 2021 at 7.1 per cent. With the residential sector accounting for 44 per cent of total global construction in 2020, it is the largest subsector and a key driver of global growth.

The non-residential sector, which was the hardest hit during the pandemic, will be the slowest to recover, while the infrastructure sector will be the fastest. The industrial building sector is expected to see strong levels of activity in Asia-Pacific amid a shift towards online platforms, supporting the region's importance to global supply chains.