Global Construction Outlook 2024
Wider context
Global economic outlook
Economic prospects for the year ahead are far from optimistic, as economists forecast a deceleration in growth taking hold partly as a result of monetary tightening policies.
Geopolitical uncertainty is a crucial factor, with 2024 set to be a record-breaking year for elections around the world and continued conflicts impacting supply chains.
The United Nation’s (UN) World Economic Situation and Prospects report for 2024 projects a slowdown in global growth from an estimated 2.7% in 2023 to 2.4% in 2024.
One positive is that projections see global inflation declining from 5.7% last year to 3.9% this year. However, any recalibration of prices will take time to feed through to supply chains and, particularly, developing economies where cost pressures are acutely felt.
An intertwined climate and economy
Echoing the pessimism but also a call to action is the World Economic Forum’s (WEF) Global Risks Report 2024.
While its survey of global experts, ranging from academia to government, paints a picture of deteriorating outlooks over the next decade, cross-border collaboration can alleviate risks such as the climate crisis, but only if pledges are met before environmental risks hit the point of no return.
Last year was the warmest on record, leading to devastating wildfires and droughts worldwide. A consequence of these events is their direct economic impact, such as damage to agriculture, infrastructure and livelihoods.
The final COP28 agreement called for a transition away from fossil fuels, albeit without a phase-out, and a trebling of renewables, which can provide an economic stimulus of ‘green’ jobs that will be vital in achieving net zero ambitions.
Increased funding for the Green Climate Fund will help to an extent with climate — and thereby economic — resiliency by investment in projects across developing nations. More funding to help those acutely affected by climate change will be needed — emphasised by two-thirds of WEF’s respondents ranking extreme weather as the top risk most likely to present a material crisis on a global scale in 2024.
Overall picture
The global economy faces another year of headwinds, not least at a macro level with more than two billion voters in 50 countries participating in national elections. While some businesses and investors will be pressing the pause button on plans amid such uncertainty, others will look to capitalise on emerging sectors and technologies.
A consequence of the unprecedentedly high interest rates to bring cost pressures down is faltering consumer demand globally, with household finances under pressure from elevated living costs and higher central bank interest rates.
One certainty is that inflation will continue to weigh heavily on central banks’ thinking, with few indications that interest rates will be cut significantly during the year. Global inflation did ease in 2023 as supply chains and labour markets normalised. Median consumer price inflation across the G20 nations fell to 3.9 per cent in October 2023, having peaked at 7.7 per cent in July 2022, with economists expecting further falls in the coming months.
Commodity prices too largely reverted following Russia’s invasion of Ukraine. However, recent volatile events surrounding shipping lanes in the Red Sea, leading to further tension in the Middle East, could destabilise oil pricing and add another inflationary shock to the world economy this year.
The impact on the global construction industry
The high interest rate market will undoubtedly impact project viability again in 2024 and many original business plans for loans made between 2020–2023 are now challenged and have created some stranded assets.
As more buildings reach the end of their current lifecycle, whether due to ESG-led owners and occupiers or regulatory restraints such as Minimum Energy Efficiency Standards in the UK, the repurposing of assets to growing sectors, such as life sciences, is expected to gain momentum. Particularly whereby upgrade costs are unlikely to be recouped, repurposing to other uses may be preferable to tap into the demand for, for instance, city centre living.
The world’s two largest economies — the US and China — continue to have geopolitical frictions. These tensions, along with the tariffs that have been in place since the Donald Trump administration, are key factors behind the decline of Chinese exports to the US. Both countries, though, are embarking on significant infrastructure spending and construction and as the year unfolds, we should gain a better understanding of whether China can emerge from its real estate market woes and rediscover its consumer and business confidence.
