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Economic forcast

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 the sort of attractive and stable economic conditions enjoyed by the US during the 1990s.Eastern Europe:

the power of privatisation Russia and many of the 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 still sit above the US and UK in S&P's ratings of the most attractive global markets.

The Eastern European market is finally developing some 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 stock markets 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 which could put an end to the region's astonishing growth: a US stock market crash; a relapse in the Japanese economy; and a faltering in China's emergence as a new economic superpower. As with the early 90s, the Far East looks to be the place - but 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 stock market.

The strength of the US economy, particularly in hi-tech industries, should guard against a deep recession. How-ever, S&P thinks it likely that what is currently the world's biggest construction market will begin to run out of steam in late 2001 or early 2002.Japan:

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 banks still have a huge problem with bad debt.

The stock market 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 area promises to be that covered by 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.' But this is largely based on demand from the US - don't expect fireworks.A final warning The US stock market is hugely overvalued. Everyone, including the Americans, knows it. Equally they know that one day there will be correction.

Perhaps understandably, S&P sees the US economy playing a crucial role in the global economy. The underlying message in most of its forecast is that if the US economy has a soft landing, the world can breathe easy. If not, then all bets are off.

European countries may be the best protected from the probable fallout, but the UK's low growth rate could well switch to a gentle (or worse) decline.

Things would be especially bad for UK construction if vital markets in South East Asia were adversely affected.The 20 largest construction markets in 2010 The last wordThe world economy is in much better shape than a year ago: however...

The recovery in developing markets is still fragile.

If you want to succeed know your risks, country by country. Thanks to Standard & Poor's chief international economist and research director Nariman Behravesh

For information about S&P's 'Building New Markets' contact Claire Dancaster, tel: (020) 8545 6286, fax: (020) 8545 6247, e-mail: clair_dancaster@ standardsandpoors.com or at Standard &Poor's DRI, Wimble-don Bridge House, 1 Hatfield Road, London SW19 3RV.

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