Abu Dhabi, UAEFriday 22 November 2019

Global construction sector grows despite economic uncertainties, Moody's says

Revenue growth and higher spending on infrastructure to help the sector stay stable over the next 12 to 18 months

Workers are seen at the construction site of US electric car maker Tesla's Gigafactory in Shanghai. Moody's says Chinese firms will see the strongest revenue growth among construction companies globally. Reuters.
Workers are seen at the construction site of US electric car maker Tesla's Gigafactory in Shanghai. Moody's says Chinese firms will see the strongest revenue growth among construction companies globally. Reuters.

The global construction sector is set to grow, albeit at a slower pace, as infrastructure spending rises, boosting revenues and stability in the industry despite economic headwinds from the US-China trade dispute, according to Moody's Investors Service

Global construction companies rated by Moody's are expected to slow down but experience "still healthy" growth in revenues of 4 per cent on average over the next 12 to 18 months, driven by steady construction demand, the rating agency said in a report on Wednesday. This forecast, however, is lower than the average 9 per cent revenue growth in 2018.

Moody's has assigned a stable outlook to the sector over the forecast period, driven by an increase in infrastructure spending and revenue growth led by Chinese companies. Its outlook covered 30 rated construction companies across nine countries, with seven operating in Europe, the Middle East and Africa, eight in the US, 13 in Asia – almost all in China – and two in Australia.

"Healthy revenue growth and book-to-bill ratios point to supportive business conditions for the global construction sector, supporting its stable outlook for the industry," Moody's said. "Although this growth is much lower ... it is reflective of the global slowdown in GDP [gross domestic product] growth and remains supported primarily by infrastructure spending."

The International Monetary Fund has painted a grim outlook for the world economy and warned of a "precarious" economic situation as a result of ongoing US-China trade friction. The IMF on Tuesday slashed its global economic growth projection for a fifth consecutive time to 3 per cent this year, the slowest since the 2008 financial crisis and down from a 3.2 per cent estimated in a July.

For next year, the IMF is projecting a 3.4 per cent expansion in global GDP on the back of better performances in economies including Brazil, Mexico, Russia and Saudi Arabia.

Moody's said Chinese companies will lead the strongest revenue growth while conditions are weakest at UK construction companies amid uncertainty around the country's exit from the European Union.

Revenue growth among Chinese construction companies is projected to rise 6 per cent over the next 12 to 18 months, though this is below the 10 per cent growth recorded in 2018.

"Growth will be driven by an increase in infrastructure spending, which is partially offset by weakness in the property and industrial sectors," Moody's noted.

Revenues for US construction companies are projected to climb 4 per cent, while European companies are expected to record the lowest revenue expansion globally, with only a 1 per cent rise, according to the report.

"Rated US companies benefit from strong spending in certain energy end-markets, while conditions vary by country in Europe and are weakest in the UK amid Brexit uncertainty," Moody's said.

Within the Asia-Pacific region, revenue growth for Australian contractors is expected to slow to 3 per cent, and remain supported by government spending on infrastructure, particularly transportation and telecommunications projects.

"Spending on mining and natural resources will also increase, but the residential sector will remain weak due to tightened credit conditions and the completion of a large supply of residential projects that begun two years ago," the ratings agency said.

Updated: October 16, 2019 02:32 PM

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