Asian Construction Market Forecast from 2015-2020

The Asian Tigers are stumbling

While the construction industry is still recovering China is about to overtake the USA as the most important market for construction. According to one study sponsored by PwC the construction industry will grow by 4.5% annually. The majority of this growth will be driven by the USA, China and India. Due to current struggles of the Chinese capital markets, other Asian countries arise as interesting targets for investors. Moreover, European and American construction companies shift their focus to Africa and the Middle East respectively.

Steady growth of the construction market in 2015

2014 was a good year for construction companies. Several major European players could not only continue their positive trends in revenue and profit, but also retain their pre-crisis levels. Driven by historically low interest rates at the capital markets there is also a high pressure to invest internationally as a Bilfinger S.E. report puts it. Still, a great number of companies does not calculate with a sudden upraise in the upcoming years. Instead the Global Construction 2025 study estimates a worldwide growth rate of 4.5%p.a. in average over the next ten years.

Change in Company Project Backlog in ASPAC

Global trends in Europe, Asia and the Americas

Currently Europe trends towards sustainable construction. Especially the United Kingdom as the world's third biggest market profits largely by this development. However, the international driver of sales are governmental infrastructure projects, as a KPMG survey revealed. Therefore, a critical factor of success more and more becomes the capability of mega project management. In terms of regions, the most trending ones are Asia with India and China as well as Africa and the Middle East. Western European companies discovered Africa as emerging market while American companies tend to focus on the Middle east as KPMG found out.

Infrastructure as growth engine

A healthy spread of construction product supports the stability of the Asian markets. The share between residential, industrial and infrastructural projects is almost evenly distributed. By government intervention there is a slight majority of projects on the infrastructure side. Almost all Asian countries are expected to increase their budgets for infrastructure in the next five years. With increased spending of about 7% China, India and Vietnam are about to take the lead by 2020.

Growth of construction spending in 2014-2019

Small countries become more important

Due to the current struggles of the Chinese economy new "Asian Tigers" arise. According to a PwC study especially Indonesia, Vietnam and the Philippines where able to capitalize on the weakness of the red giant. Other sources cite Malaysia and Hong Kong as outstanding examples. Also other Asian countries can take advantage of the slow down of Chinese growth. Nonetheless in 2015 China will take over the USA as the biggest market for construction for the first time in history. To set these growth rate in perspective: more than 50% of all construction business is already conducted in emerging markets.

China's weakness prevails

With all these measures in place the double digit growth rate from the beginning of this century will not reappear. Still the emergent markets outperforme the western ones, with the novelty that the Asian/Pacific region no longer is the global growth driver. The development in the emergent countries of Asia is strong and steady.Effect of capital cost on the Asian construction marketAs an annual report by a professional services company shows the optimism of experts towards the Asian region prevails but slowly fades. While 2015 over two thirds of participants believed in increasing market size, the fraction shrunk to only 50% in 2014. One possible explanation could be the credit risk of those countries. A recent article by Standard & Poor’s describes a "disappointing" growth rate over the last couple of years. This in turn implies a risk on the loans given to those countries as the interest rates might be harder to compensate. Public bond remains on a low level in the recent past.

Experts forecast market growth driven by Indonesia and the Philippines by 2020

The Asian constructions market will take over, if only with less vigour than expected. Not even the most powerful political apparatus can make up for structural weaknesses in the area. While this will not reverse the trend of Asia an emergent region, it will slow down it's development. The forecast to the middle term shows that until 2020 the most interesting markets in Asia will are going to be Indonesia and the Philippines. The slightly clouded optimism of investors and experts should be followed with special interest, since it can influence the development and forecasting until 2020 immediate.Author: Bastian Burger