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Civils shift Global construction fortunes look set to shift to southern Europe and Asia over the next 10 years, according to an influential US study. Alastair McLellan reports.

Economic forecast;

The last few years of the 20th century have seen sharply varying fortunes for those involved in the world's $3.7 trillion global construction market. The lucky firms, claims US economist Standard & Poor's DRI/FW Dodge, were focused on the North American market - and its annual 8.6% growth rate - the unlucky ones were not.

However the US market is set to slow significantly and the greatest opportunities for the next decade are likely to come elsewhere, with the Asian Tigers roaring back and the major southern European states turning into the continent's biggest building site.

S&P global market planning principal Chris Holling is in no doubt that the world's construction industry is facing a watershed.

'For a while now, many global construction firms have relied on a handful of mature, low-risk markets for much of their business. But the numbers tell us that the next five years will be very different. The successful construction companies will be those that take advantage of promising markets that may not have been on their radar screen a few years ago.'

Global construction spending is set to average a 5.1% increase over each of the next five years, with civil engineering leading the way.

Growth in the civils sector is forecast to average 6.1%. The reason for this is twofold. Many developing countries are expected to shrug off the economic fears of the last few years and grow strongly. To do so they will need to put in new infrastructure and upgrade what already exists.

The other reason for civils growth is the massive hike in US transportation investment inspired by the TEA-21 legislation which has authorised $48bn a year spending on highway construction and repair over the next six years. Ironically it is the only construction sector in the US with any long forecast term growth.

Globally, non-residential building is set to grow by 5.1%, with the European market this time joining developing countries to boost demand. Housing construction is expected to rise by 4.4%.

The UK: slow but safe

According to S&P, the UK occupies a mid-table position in the ranking of global construction market opportunities. The economist predicts that during the first decade of the next century the UK will be the world's seventh largest construction market. It will also, apparently, be the sixth safest market in which to operate. However, growth over the next five years is predicted to average just 1.9%, by far the lowest of any major Western European economy.

Western Europe: gradual acceleration

S&P believes that the leading Western European states are about to experience the export-led recovery which was aimed for and missed by Britain during the last years of the Major Government. The economists point to strong demand for European goods from emerging markets and the US. At present the Single Currency is dampening down domestic demand, but S&P expects it will create stable economic conditions as enjoyed by the US during the 1990s.

Eastern Europe: the power of privatisation

Russia and many other countries which made up the former Soviet Union face a bleak decade. S&P claims a lack of political will to tackle economic problems, such as an inflation rate of 50% for example, will mean years of stagnation for the former superpower.

The other trouble spot in the region is, of course, the Balkans. But numerous civil wars have created a potential workload for construction companies. The need for reconstruction - in Bosnia particularly - is likely to attract funding from the World Bank and the European Bank of Reconstruction & Development, among other international funding agencies.

Although not large, safe or active enough to be true construction hot spots, the former Warsaw Pact states of the Czech Republic and Bulgaria are set to enjoy considerable prosperity on the back of wide scale privatisation programmes which encompass banks, utilities and manufacturers.

Near neighbours such as Albania and Hungary are expected to do less well, but they sit above the US and UK in S&P's ratings of the most attractive global markets.

The Eastern European market is finally developing robustness.

Asia: on the way back

S&P admits that, along with other economists, it has been surprised by the strength of the recovery in South East Asia. Global liquidity, easier fiscal and monetary policies, plus export demand from the US have all helped the Asian Tigers to get back on their feet.

Singapore, Malaysia, Taiwan and the Philippines have found confidence from a booming, export-driven IT sector, while pent up consumer demand is driving the development of retail and leisure facilities and the stockmarkets are doing well.

Leading the way is South Korea, which adds the advantage of an advanced legal system to the typically strong South East Asian entrepreneurial culture.

All this activity is expected to bring a return of the glory days for South East Asian construction around 2002.

The future appears bright, but S&P warns against three risks to the region's astonishing growth: a US stockmarket crash; a relapse in the Japanese economy; and a faltering in China's emergence as an economic superpower. And high levels of corporate debt and excess capacity suggest there is no room for complacency.

The US: the giant slips

North America has benefited hugely over the past few years from the economic woes of the rest of the world, with the dollar becoming the safest port in the storm.

Greater worldwide economic stability could see a lower dollar, accelerating inflation, higher interest rates and a correction in the stockmarket.

The strength of the US economy, particularly in high-tech industries, should guard against a deep recession. However, S&P thinks it likely that the world's current biggest construction market will begin to run out of steam in late 2001 or early 2002.


still shaky

The sun may have set on Japan's worst post-war recession, but S&P remains sceptical about the sustainability of the recovery. Consumer confidence remains undermined by the trauma of unprecedented corporate restructuring, and efforts by the Japanese government to shore up the economy have produced a ballooning public sector debt.

The stockmarket is doing well and export demand from South East Asia is high, but S&P thinks the Japanese economic miracle has hit the buffers.

Latin America: recovery delayed

The one Latin American state able to look to the future with real confidence is Mexico. The country's economy is enmeshed with that of the US and as long as consumer demand remains high north of the border, Mexico will continue to flourish.

Further south things are much more uncertain. To a large extent the region's fortunes are governed by the plight of its largest economy, Brazil. Although the country is recovering from its financial crisis earlier this year, there is little appetite for further 'tough fiscal measures' .

Much of what happens in Argentina, the region's second largest economy, appears to rest on the outcome of the presidential election.

The least active areas promise to be Ecuador, Colombia and Venezuela. Low growth and an uncertain political and economic environment are expected to produce a construction deadzone.

Despite its cautious view S&P claims that 'barring a nasty turn of events in the US, the stage is set for a fairly robust recovery in the region next year.'

Read this if

you want to understand which countries possess the greatest potential as overseas markets during the next decade.

you want to know more about the impact of macro economic trends on construction investment.

For information about S&P's 'Building New Markets' contact Claire Dancaster, tel: 44 20 8545 6286, fax: 44 20 8545 6247, e-mail: clair_dancaster@ or at Standard & Poor's DRI, Wimble-don Bridge House, 1 Hatfield Road, London SW19 3RV

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