March 2024

Industry trends
Construction
Civil engineering drives
industry, while economic
conditions still weigh on
residential construction
activity

Global overview

Infrastructure projects drive demand

The global construction industry is facing
modest growth in 2024.

Materials and labour costs remain highin many economies, which has led topressure on margins and reluctance tocommit to building projects.

We expect global construction output
to increase by 2.0% in 2024 (up 3.7% on2023). Growth in advanced economies ispredicted to be 1.8%, while building activityin emerging markets will likely increase by
2.2%. China’s ongoing real estate turmoil
and downgraded investment profiles areweighing on global construction prospects.

Global residential construction is
forecast to level off in 2024. High interest
and mortgage rates are squeezing
household budgets and reducing
demand. Demand for housing is likely
to remain sluggish until wider economic
conditions improve and central banks
start to decrease interest rates.

Non-residential output and civil engineering
are expected to increase by 2.8% and 4.4%
respectively this year. Governments worldwide
continue to champion major infrastructure
projects to bolster their economies as otherareas struggle amid tighter monetary policies.
In 2025 we forecast global construction togrow 1.8%. Residential construction output
is expected to rebound by 2.4%, as economic
conditions should improve, and looser
monetary policies start to take effect.

Asia and Oceania

AmericasIndustry performance forecast
Europe1Austria

Netherlands

Australia

Phillippines

BrazilBelgium

PolandChina

Singapore

CanadaCzech Republic

PortugalHong Kong

South Korea

MexicoDenmark

Slovakia

India

TaiwanUSAFrance

Spain

Indonesia

ThailandGermany

SwedenJapan

UAE

Hungary

Switzerland

Malaysia

VietnamIrelandTurkeyNew Zealand

Italy

UK

Excellent
The credit risk situationin the sector is strong /business performance in thesector is strong compared toits long-term trend.
GoodThe credit risk situationin the sector is benign /business performance in thesector is above its long-term trend.
Fair
The credit risk situationin the sector is average /business performance in thesector is stable.
Poor
The credit risk in thesector is relatively high /business performance in thesector is below its long-term trend.
Bleak
The credit risk in thesector is poor / businessperformance in the sector is weakcompared to its long-term trend.

March 2024

Industry trends
Construction
Outputper region

2022

2023

2024*

2025*

Global output
per subsector

North America

-5.1

1.8

2022

3.5

2.9

Construction
total

0.6

1.7

0.6

Residential

0.8

1.7

1.0

2.5

Non-residential

1.0

2.5

2.7

3.3

2023

3.7

2024*

2025*

2.0

1.8

6.3
Asia-Pacific

EuropeMiddle East /Africa

2.1

2.1

4.4

0.55.5

CivilEngineering

6.8
0.4

0.0

2.8

4.4

2.4

1.4

1.5

Year-on-year, % change /*forecast – Source: Oxford Economics

Strengths and growth drivers

Constraints and downside risks

Fiscal support. The Infrastructure Bill in the US, Recovery
and Resilience Facility in the EU, and China’s fiscal supportof infrastructure projects will drive building activity.

Competitive environment. In most markets competition is intense,profit margins are thin and public buyers often pay late. There is ahigher proportion of business failures than most other industries.

Sustainability. There is increasing investment and demand
for renovation or upgrades to improve energy efficiency andto comply with tighter environmental standards.

Labour shortage. A lack of skilled workers can increase wage
costs and is a serious issue in many advanced markets. This could
become a major structural problem in Europe in the mid-term.

Emerging markets. Growing urbanisation continues to drive
demand for new housing.

Sustainability. The sector accounts for a whopping 36% of theworld’s energy use and 40% of CO2 emissions. There is pressure
on construction firms to reduce their environmental impact.

2March 2024

Construction outlook
Americas
Construction output

2022

2023

2024*

2025*

Brazil

7.1

0.4

1.6

2.6

Canada

1.1

-2.1

-1.9

2.0

Mexico

2.9

3.5

2.5

3.2

CanadaUnited States

-6.8

1.1

4.4

3.5

MexicoYear-on-year, % change /*forecast – Source: Oxford Economics

We expect US construction output to increase
4.4% in 2024. For both non-residential andcivil engineering output the momentumof 2023 is expected to carry over into thisyear, with output forecast to expand by 6.9%
and 10.5% respectively. The non-residential
subsector continues to be driven by several
large manufacturing projects, while civilengineering activity will benefit from theInfrastructure Investment and Jobs Act.
After a 7.5% contraction in 2023, residential
construction is forecast to grow by only 0.1%
this year. This segment has been negatively
affected by the significant increase ininterest rates over the past year as the Fed
combatted inflation. Higher borrowing
costs and mortgage rates have discouraged
potential homebuyers.

3BrazilUSAExcellent
The credit risk situation in thesector is strong / businessperformance in the sector is strong
compared to its long-term trend.

USAResidential construction rebound gains
momentum in the course of 2024.

Industry performance forecast

In 2025 we expect US construction output
to increase 3.5%. While residential building
and civil engineering growth will cool down,
we expect a 5.2% rebound in residential
construction, given monetary easing gains
momentum in H2 of 2024.
Overall resilient, but some issues remain
The industry as a whole remains resilient,despite pressure on profit margins due tohigher interest, materials, and labour costs.
One notable weakness is the managementof working capital. Some businesses areholding high levels of inventory and accounts
receivable, which is placing pressure on theiroperating cash. This could potentially leadto liquidity constraints if they cannot secureadequate external financing from lenders.

GoodThe credit risk situation in the
sector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in thesector is average / businessperformance in the sector
is stable.
Poor
The credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

March 2024

Construction outlook
Asia PacificConstruction output

2022

2023*

2024*

2025*

China

2.5

7.1

1.7

-0.2

India

8.6

10.6

1.2

2.6

Japan-6.2

4.1

1.5

0.3

South Korea

0.7

3.2

0.3

1.8

Year-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Australia
ChinaHong KongIndia
Indonesia

China
Woes in the property sector drag down sector
growth.
We expect Chinese construction output togrow only 1.7% this year and to contract 0.2%
in 2025. The turmoil in the property sector isstill ongoing after investment decreased 9.6%
in 2023. Residential construction output is
forecast to contract 0.5% in 2024 as financial
issues for property developers continue
to constrain activity. There is a significant
excess supply problem, and unwinding thiswill require cleaning up the sector’s large
existing inventory overhang and the excessleverage of property developers. Currently
it seems that the sector is shifting to a moresocial housing focused approach, with thegovernment taking a more active role.
The non-residential building and civilengineering segments are expected toincrease by 3.4% and 4.1% respectively in
2024. Civil engineering activity will be driven
by public investment in strategic sectors like
EV charging and renewable energy.

Japan
Subdued long-term prospects.
After a 4.1% increase in 2023, construction
output growth is forecast to slow down to
1.5% this year. This is mainly due to a growth
slowdown in both the non-residential andcivil engineering segments. Homebuilders
continue to work through their backlogs ofresidential projects, which will lead to a 2.4%
growth in this subsector.
In the long-term, Japan’s construction sector
will be severely affected by demographics.
The population has already begun todecrease, and the percentage of people
older than 65 is expected to rise steadily
throughout the rest of the decade. As mostdemand for new houses tends to comefrom working age population, the growing
proportion of elderly people over 65 will dragon residential construction activity.

JapanMalaysia
New ZealandPhillippines
Singapore
South Korea
TaiwanThailand
UAE
Vietnam
Excellent
The credit risk situation in the
sector is strong / businessperformance in the sector is strong
compared to its long-term trend.
GoodThe credit risk situation in thesector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in the
sector is average / businessperformance in the sectoris stable.
PoorThe credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

4March 2024

Construction outlook
EuropeConstruction output

2022

2023

2024*

2025*

France-0.3

-1.0

0.6

1.7

Germany-3.1

0.3

0.7

2.8

Italy

10.8

0.2

0.8

2.7

Belgium

United Kingdom

6.8

2.0

-1.8

2.1

Czech RepublicYear-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Austria

DenmarkFranceEurozone and UK
Rebound strongly depends on monetaryeasing.
Construction in the Eurozone is forecast to
grow only 0.7% in 2024, as the economic
rebound will be modest and interest rates
are still high. Current activity is sustainedby a backlog of work and EU-fundedpublic projects to increase energy security/
efficiency. Given a monetary easing in Q2
residential building should start to recover,
and we expect construction output toincrease 2.4% in 2025. However, material
costs will remain higher than in the past, andlabour shortages continue to grow. Credit risk
for construction businesses has increased inmost European markets.
Germany: Construction activity will increase
only 0.7% in 2024, after growing 0.3%
last year. A sluggish industrial outlook isweighing on demand for non-residentialconstruction. Residential construction issuffering from increased interest rates
and high labour and material labour costs,
leading to cancellation of many orders.

Germany
France: Construction activity will increase
0.6% in 2024, mainly sustained by civilengineering in relation to the summer
Olympics and infrastructure building.
However, sluggish residential building
activity will weigh on the sector as interest
rates remain high in the near-term.
Italy: Civil engineering is expected toexpand by 3.1% in 2024, supported by EU
funding for energy security, power grid andtransportation improvements. However
overall construction activity will grow only
0.8%, as residential construction will contract
0.2% due to increased input prices and highinterest rates.
United Kingdom: Construction output isforecast to decrease 1.8% in 2024, withresidential building contracting 3.3%.
High interest rates have increased the costof financing projects, which is feeding
through into mortgage rates and weighing
on affordability. Labour constraints area serious issue. The cancellation of thenorthern section of HS2 poses a downsiderisk to the civil engineering outlook.

Hungary
Ireland
Italy
Netherlands
PolandPortugal
Slovakia
Spain
SwedenSwitzerland
TurkeyUK
Excellent
The credit risk situation in thesector is strong / businessperformance in the sector is strong
compared to its long-term trend.
GoodThe credit risk situation in thesector is benign / businessperformance in the sector
is above its long-term trend.
FairThe credit risk situation in thesector is average / businessperformance in the sector
is stable.
PoorThe credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

5March 2024

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P.O. box 8982 · 1006 JD Amsterdam
The Netherlands
Phone: +31 (0)20 - 553 91 11info@atradius.com
www.atradius.com

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