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Global construction activity – Can we be optimistic in 2023?

Global construction activity took a massive blow during the COVID-19 pandemic. Three years later, the journey toward full recovery remains sluggish. However, the Royal Institute of Chartered Surveyors (RICS) Q1 2023 Global Construction Monitor report unveils a promising development. In Q1 2023 “Workloads picked up (or stabilized) across all sectors at the global level” propelling the Global Construction Activity Index to its highest level in four quarters.

The report highlights positive advancements in the Construction Activity Index (CAI) across various regions-

  • APAC (Asia-Pacific) saw a significant rise in its CAI, reaching +23 compared to the previous +7
  • The MEA region maintained a steady CAI of +25
  • Americas experienced a slight uptick, reaching +18 from last quarter’s +13
  • Europe is the only region with a marginally negative CAI, declining to -4 from the previous figure of -2

These findings underscore the overall positive momentum and growth trends observed across APAC, MEA, and the Americas.

How are things at the country level?

As for country-level CAI, Saudi Arabia, India, Nigeria, UAE, Mauritius, and Singapore show the biggest CAI. On the other end of the spectrum, Sri Lanka, Qatar, Netherlands, New Zealand, Kuwait, and Germany show negative CAI in Q1 2023. USA, Canada, UK, and Australia also show positive CAI in Q1 2023. 

Here’s a graph to help you understand better-

Construction Activity Index by country

Overall work activity in the UK increased slightly in Q1 2023 as workloads increased to +3% compared to -1% in Q4 last year.

Infrastructure to outpace residential and commercial projects

Now, shifting our focus to various sectors, the report states that the infrastructure sector is poised for substantial growth in the upcoming quarters, while the residential and commercial sectors are expected to experience comparatively modest levels of growth.

Infrastructure workload will be highest in the APAC region at around 64%. Following closely behind is the Americas, with around 55%. The MEA region is anticipated to have an infrastructure workload of approximately 45%, while Europe is projected to have the lowest at around 17-18%.

Construction workload in different regions over the next 12-months

The overall expectation for workloads in the private residential sector is relatively flat in Europe. In the Americas, the net balance of private residential projects is at +9%, which is an improvement from the previous quarter’s net balance of -2%. Both APAC and MEA anticipate a rise in private residential workloads, with net balances of +28% and +39% of respondents, respectively.

Private non-residential sector workload is expected to grow significantly in APAC and MEA, with net balances of +33% and +43% respectively. In the Americas, the situation is less cheerful, with a net balance of +19% compared to the previous +30%. In Europe, private non-residential workloads are seen as generally stagnant, returning a net balance of just +2% in Q1, albeit slightly improved from the previous figure of -7%. Material and labor shortages hampering global construction activity

Despite the positive, the global construction industry is currently facing significant challenges. Material and labor shortages are some of the biggest hurdles impeding the progress of construction projects worldwide. Firms are dealing with delayed timelines, increased costs, and a heightened level of uncertainty in the completion of their projects.

Other factors that are limiting construction activity are-

  • Financial constraints
  • Cost of Materials
  • Competition
  • Uncertain weather
  • Government regulations

RICS’s report shows the most common hindrances that are limiting construction activity. Refer to the graph below.

Factors affecting construction activity

Last month, the US Bureau of Labor Statistics released Producer Price Index (PPI) data for March 2023, which showed a significant increase in commodity prices. This combination of soaring material costs, payment delays, and lack of skilled labor has severely impacted the timelines of construction projects, placing an enormous work and financial burden on firms and subcontractors alike. This is making it difficult for the industry to meet the growing demands for infrastructure and construction.

Positive year ahead for construction?

Notwithstanding the challenges, the construction industry offers a glimmer of hope and optimism. Economic recovery efforts, increased infrastructure investment, and supportive government policies can help construction activity ‘pick up’ in many regions.

Demand for new residential and commercial spaces isn’t going to slow down. The challenges we discussed above and their ramifications, highlight the need for innovative construction methods. Advancements in technology and sustainability practices present avenues for innovation and efficiency within the industry.

While uncertainties remain, there is an overall sense that the construction sector is on a trajectory toward a positive year ahead, with potential for increased demand, improved project outlooks, and a revitalized industry landscape.

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