Global Construction Outlook 2023
Wider context
Global economic outlook
The consensus is that 2023 will see a weakening of the global economy, with the World Bank reporting a recession is “perilously close” this year.
The International Monetary Fund’s World Economic Outlook, published in October 2022, warned that 2023 would see “the weakest growth profile since 2001,” aside from the global financial crisis and the peak of the COVID-19 pandemic.
In 2022, Russia’s invasion of Ukraine led to energy and food price spikes, causing high levels of inflation in many countries. These issues reignited the cost escalation seen as countries emerged from the COVID-19 pandemic.
Slowing of the three largest economies — the United States of America (USA), European Union (EU) and China is forecast.
Asia is a bright spot in the global economy
Despite overall weakening, forecasters see some bright spots in the global economy for 2023.
Growth is anticipated for many Latin American countries as raw materials prices have increased.
The outlook is also favourable for Asia. Morgan Stanley’s ‘2023 Global Macro Outlook’ indicates an “optimistic outlook” for the region, forecasting growth for three of the world’s largest economies: China, Japan and India.
Expected to be an outlier, GDP in India is projected to expand by more than 6% in 2023 and 2024. Three strands underpin the country's growth:
1. Advanced digital infrastructure
The National Master Plan, PM GatiShakti, is an example of the proactive measures taken by the Government of India to speed up digital infrastructure roll-out.
2. India is the home for many companies worldwide that outsource services
In the post-COVID environment, people are more comfortable with remote working.
This, and tighter global labour markets and distributed work models, are fuelling Indian growth.
3. Investment in energy access
With recent upgrades to transmission and distribution, along with other changes, leading to all of India’s 600,000-plus villages having access to electricity.
Climate change
In 2022, NASA and the National Oceanic and Atmospheric Administration recorded the warmest La Niña year on record, a phenomenon which typically has a cooling effect on global temperatures.
The United Nations Intergovernmental Panel on Climate Change (IPCC)’s ‘Sixth Assessment Report’, released in August 2021, found that the world has warmed to 1.1C higher than pre-industrial levels, close to the critical 1.5C threshold agreed, above which dangerous impacts would be felt across the world.
The 27th session of the Conference of the Parties of the United Nations Framework Convention on Climate Change (COP 27) was held in November 2022 in Sharm el-Sheikh, Egypt.
The BBC identified the key takeaways from COP 27 as being:
A new funding agreement on loss and damage
- A pooled fund for countries severely affected by climate change is considered the most important advance since the Paris Agreement at COP 2015.
- However, the fund requires clarification on payout and concerns were raised about whether contributions would be sufficient.
- Despite the unknowns, the fund's establishment begins to rebuild trust and solidarity.
Missed opportunity in the wording of text around fossil fuels and the peaking of emissions
- Open to interpretation, there is concern that the final text contained a provision to boost “low-emissions energy” from wind and solar energy to gas, which has lower emissions than fuel but is still a fossil fuel.
- At COP 26 in Glasgow, a commitment was made for the phasing down of coal use — at COP 27, some countries were hoping to strengthen the text for all fossil fuels. However, after negotiations, the text was the same as previous.
- A resolution for greenhouse gas emissions to peak by 2025 was also taken out, threatening the 1.5C target.
The United Nations Environment Panel (UNEP) warned in October 2022 that an urgent transformation of society is required to avoid the disaster of temperatures rising beyond 1.5C.
Scientists say that reductions in carbon emissions of 45% are needed to keep the 1.5C aspiration alive, with rapid transformations away from fossil fuels in electricity, industry, transport and buildings required.
The IEA’s ‘World Energy Outlook’, also published in October 2022, had some notes of hope that the energy crisis triggered by Russia’s invasion of Ukraine is leading to changes which have the potential to speed up the transition to a more secure and sustainable energy system.
The same report also found that policies from the EU, and countries such as Japan, USA and Korea, will likely see clean energy investments of approximately $2 trillion by 2030.
Overall picture
An uncertain picture … who knows what else will come?
At the start of 2023, market commentators are more hopeful of avoiding a global recession. However, a challenging year with low growth is expected for most economies worldwide.
The world has also become increasingly unpredictable in recent times, with the COVID-19 pandemic, the Suez Canal incident and the Russia-Ukraine war reshaping the global outlook.
Tensions continue, with concerns of a prolonged conflict in Ukraine and deteriorating relations between China and Taiwan. Trading relationships are increasingly cautious, influenced by sanctions and changing world order. The climate crisis is adding to the consequences of geopolitical pressures. Reported by Le Monde, the World Food Programme recently warned, “We are facing the worst humanitarian and food crisis since World War II”, with hundreds of millions threatened by famine.
Events such as these — for example, a new COVID-19 variant, an escalation of hostilities or another world event — could dramatically change the year’s outlook. Likewise, favourable outcomes such as the longed-for ending of Russia’s war with Ukraine could improve fortunes.
What does the context mean for the global construction industry?
Whilst the variable economic outlook will likely impact some spending by governments in the short-term as further support is required in the face of high inflation, the challenges have also highlighted significant security risks and the dangers of overreliance on importing resources. As a result, investment is committed to improving energy security and supply.
The climate crisis and targets to reach net zero carbon by 2050 also require spending — a McKinsey & Company report found that capital spending on physical assets for energy and land-use systems during the transition will reach approximately $275 trillion. Changing demographics and needs will also require infrastructure investment. Overall, there is a strong pipeline of work for the global construction industry.
