Coface Group


Central & Eastern Europe
Latin America
Mid-East & Turkey
Northern America
Western Europe
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  • World population growth
  • Continued increase in urbanization
  • Low interest rates globally


  • Construction companies’ debt level remains high, notably in China
  • High household debt levels overall globally
  • High public debt constrains public infrastructure investment
  • Dependent on economic cycle

Risk Analysis

Risk Assessment

Global construction, while facing challenges like other pro-cyclical sectors in the continued worldwide economic slowdown, is expected to remain resilient overall due to a number of factors. These include a low interest rate environment made possible by the accommodative monetary policies of the central banks, which are supporting new commercial and residential housing starts and to some extent, the consumer and business confidence in the sector. It will also benefit from the knock-on effect of investment decisions in terms of large infrastructure projects, notably in the energy and chemical sectors. Industry players should also benefit from lower prices for some inputs such as steel. It is also expected to gain from the growing concern of citizens and governments about the need to prevent environmental risks and to fight climate change. This has led to initiatives such as the European Union’s “carbon neutrality plan in construction” by 2050, expected to support a demand for the construction and renovation of “ecologically friendly” buildings. At the same time, the introduction of stricter standards in this area will also force companies in the sector to adapt to them. This could prove costly and contribute to limit their financial performance in an already difficult environment.

Construction EN
Sector Economic Insights
Low interest rates and lower prices for certain inputs are expected to offset difficulties in the construction sector in the context of the downward economic cycle

Construction, as a pro-cyclical sector, is indeed impacted by the continuing global economic slowdown. Coface anticipates global GDP growth at 2.4% this year, down from 2.5% in 2019 and 3.2% in 2018. This will lead to lower demand for the construction sector, although with regional discrepancies. Therefore, in order to support economic activity, leading central banks both in advanced and emerging economies announced monetary easing measures last year. In the United States, the Federal Reserve lowered its key policy rate three times between July and October 2019. Moreover, for the first time in ten years, it injected liquidity into the daily money market on September 17. The European Central Bank relaunched its bond purchase program in September and lowered the deposit rate taxing the excess liquidity of banks from -0.40 to -0.50%. The People’s Bank of China (PBOC) implemented targeted monetary stimulus measures, including three Reserve Requirement Ratio (RRR) cuts in 2019 and liquidity injections via open market operations (OMOs). These measures limited the risk of an interbank liquidity squeeze and supported Small and Medium Enterprises (SMEs), including those in the construction sector. Other central banks in emerging economies embarked on monetary easing measures with at least one interest rate cut last year. These included India, Indonesia, Brazil, Mexico, Nigeria, Egypt, and South Africa. Moreover, the global construction companies are expected to continue to benefit from lower albeit volatile prices for some inputs such as steel.


Housing demand is expected to remain sound overall, while the infrastructure segment is on a contrasting trend

Those monetary policies, designed to support economic activity, are expected to benefit real estate demand as well as new building permits in the United States this year. This is thanks to a context of rising wages in the country and a dynamic labour market. In addition, this is in a context of high consumer and builder confidence. As a result, the level of housing starts is expected to remain solid in the US with S&P projecting 1.3 million housing starts in 2020, although lower than the historical trend averaging 1.4 million over ten years. In Western Europe, demand for new residential housing is also expected to remain robust overall, supported by lower interest rates. Moreover, the various incentives to develop energy efficient buildings, notably in commercial spaces, are likely to support developers’ sales, particularly in Europe and in the United States.

The question of housing affordability in big cities is expected to remain an issue, particularly in Europe, and could somewhat counterbalance the aforementioned positive developments. House prices in Europe are expected to continue to rise overall. This is the case in Germany for example, the leading economy in the region. According to S&P, although on a decelerating trend, housing prices in Germany are expected to increase by 4.5% this year, down from 5.3% in 2019. In Germany, the solid household disposable income and employment levels, together with the above-mentioned low borrowing costs in the Eurozone, support strong demand for housing, despite the lacklustre economic prospects in the country. Coface estimates GDP growth at 0.5% this year, the same as last year. Furthermore, demand should be supported by the new climate package put in place by the government to support renovations and “energy efficient” buildings. However, the supply and demand imbalance remains favourable to sellers and the German construction sector is running on full capacity. In the US, big city prices are notably impacted by the limited building space that back higher prices. In China, homebuilders will remain constrained by the knock-on effects of measures put in place by the Chinese authorities to stabilize the housing market. Therefore, property prices are unlikely to rise.

In the current economic slowdown, new major public infrastructure projects are unlikely. In the United States for example, the very large infrastructure project planned by the federal government, with the support of the opposition parties is now compromised. This is mainly due to the context of the ongoing impeachment procedure led by the Democratic Party against President Trump. At the same time, large infrastructure projects decided and launched many years ago (for example - since 2010 in the US for example), notably by major European and American multinational companies in the energy and chemical sectors, are still under way and are therefore supporting activity in the infrastructure segment. They aim to develop their projects in regions where the raw material is less expensive. This is the case of some American companies, which are building plants in the Persian Gulf and in Asia. Another example of the infrastructure dynamism in the petrochemical industry is the announcement late last year of a Chinese-Russian joint venture for a five-year project worth USD 13.3 billion, with the ambition of building one of the largest petrochemical plants in the world. The joint venture involves the China National Chemical Engineering Group (CNCEC) and the Baltic Chemical Complex (a subsidiary of RusGasDobycha). The plant, which will process Russian natural gas, is to be built in the port of Ust-Luga, near the Gulf of Finland. Furthermore, the Silk Belt and Road Initiative, involving 131 countries in 2019, will support the infrastructure segment globally, even though some projects in Asian countries were delayed or postponed last year. It notably aims at connecting Asia, Europe, and Africa with China. This is despite the economic slowdown expected in China this year (Coface anticipates GDP growth to slow to 5.8% down from 6.1% in 2019 and 6.6% in 2018). Countries involved are indeed expected to continue to contribute to the financing of the associated projects, as should multilateral development banks such as the Asian Development Bank and commercial banks.


The construction sector is undergoing many transformations

There are constant innovations in the construction sector. Similar to other sectors, it is highly impacted by the Artificial Intelligence (AI) revolution. Innovations in this area include AI-driven robotic systems to sort, collect, and process demolition debris for recycling. It will also continue to be impacted by both consumer and public authority willingness to prevent environmental risks and to fight climate change. This entails additional constraints to which construction companies need to adapt. On the other hand, it should enable the development of activities with a view towards renovating or constructing energy-efficient buildings, particularly in the commercial sector, and this should continue to support the developers’ sales. For example, the European Union is committed to achieving ”carbon neutrality” for new construction by 2050, as well as reducing carbon emissions in the sector by 40% by 2030. According to the World Green Building Council platform, building and construction is responsible for 39% of all carbon emissions in the world. For their part, Chinese authorities also put in place a plan to tackle environmental risks in the sector with the “13th Five Year Plan for Energy Efficiency in Buildings and Green Building Development” that is due to end this year. It includes several projects, including the development of the intercity electric vehicle fast recharging network, the setup of more than 800 intercity fast recharging stations, as well as actively promoting large-scale hydropower base delivery channel constructions.


Last update : February 2020

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