However, significant growth comes with significant challenges, especially during a period of huge change for both the construction industry and the world at large. The Future of Construction: A Global Forecast for 2030, co-published by Marsh McLennan businesses Marsh and Guy Carpenter, and written in partnership with Oxford Economics, explores the challenges construction faces in the run-up to 2030.
Before tackling the risks for the industry’s future, the report first praises the “remarkable resilience” the industry has shown in recovering from “a period of significant disruption to the global economy – the worst since the great depression some 80 years ago,” before going on to forecast significant growth in world construction output over the next few years.
In the near-term, this recovery will largely be driven by a significant buildup in household savings due to restricted spending during lockdowns, combined with a widespread desire for more residential space among homeowners. In addition, temporary fiscal stimuli introduced by world governments to combat the economic effects of the pandemic will also drive growth moving into 2022.
In the longer term, construction is predicted to be a major driver of global economic growth and recovery in the next decade, and is forecast to grow faster than both the manufacturing and services industries. Emerging markets are set to dominate this upward trend, with China, the US, India and Indonesia forecast set to account for a staggering 58.3% of global growth in construction output.
Risks for the future
The report identifies several risks with the potential to challenge these positive forecasts, however. These are split into near-term and longer-term risks.
- The Delta variant
The main near-term risk to construction (and global economic) recovery is the Delta variant of coronavirus, which has proven to be both more transmissible and more deadly than previous mutations. If the Delta variant results in further waves of infections that overwhelm global health services and force a return to lockdowns, this could seriously hamper economic recovery.
High levels of inflation are currently a concern, with the latest figures revealing that prices rose by an average of 3.2% in the UK over the past 12 months. The Bank of England believes this figure could rise above 4% by December, which could potentially dampen consumer demand for construction projects as finances are increasingly squeezed. It is also likely to further raise prices for key construction materials, negatively impacting profit margins.
- Supply chain bottlenecks
Supply chain bottlenecks across the globe have already led to significant shortages of key construction materials, with lumber prices rising by well over 100% in some markets. Combined with high inflation, rising prices could result in further cost escalation in an industry where profit margins are already extremely tight.
- The climate crisis
We’ve already written extensively in recent years about the key role construction has to play in combatting climate change. It is therefore unsurprising that the report classes climate change as “arguably the biggest risk facing the construction industry over the longer-term.” Looking ahead, the industry must decarbonise rapidly in order to meet ambitious climate change targets, while measures for dealing with climate change are only set to become more stringent as the situation grows in urgency.
- Governments’ ability to finance public investment
Also identified as a challenge was world governments’ ability to manage high levels of debt (Japan’s debt is currently 236% of GDP!) whilst also channelling funding into much-needed improvements to health and social care systems to deal with an increasingly ageing demographic. With so much pressure on public finances, it could become much more difficult for governments to fund infrastructure.
The future is bright
As the world continues to recover from the pandemic, uncertainty about the future inevitably remains. The Future of Construction report acknowledges this fact whilst also presenting an overwhelmingly positive picture for construction in the next decade.
In the UK particularly, residential construction is set to be huge driver for growth, in addition to the high levels of government spending on infrastructure announced in the past few years. We fully expect the UK construction industry to lead the way as we move into the post-pandemic future.