North America's construction industry output is expected to drop to $1.87trn in 2022 ($1.93trn in 2021) due to greater-than-anticipated inflationary pressure and interest rate hikes, according to Global Data, a leading business market intelligence company.
GlobalData's 'Global Construction Outlook to 2026, Q3 Update' reveals that the 2022 forecast for North America has been revised down from a growth of 2.4% to a negative 3.1%. While the macroeconomic environment has weighed heavily on US construction, Canada is expected to retain much of its industry growth momentum from 2021 - rising by 4% in 2022.
Jack Riddleston, Construction Analyst at GlobalData, says: "The quickly deteriorating macroeconomic environment has taken policymakers by surprise, and central banks have responded to inflationary pressure by aggressively increasing interest rates. Elevated material prices, supply-side bottlenecks and labour shortages are causing delays and postponements of projects. In addition, investment in new projects will likely fall as further rate hikes will restrict access to credit.
"Underlying vulnerability in the construction industry stems from the housing market, which appears to be at an inflection point. The residential sector enjoyed extensive growth over the past ten years in North America and was particularly strong over the pandemic period. Record low-interest rates and an excess of savings supported a housing construction and renovation boom. However, demand for housing is dropping rapidly; high mortgage rates, high household debt, and cost of living expenses are squeezing real incomes, which has resulted in a significant drop off in growth for the residential sector."
According to the US Census Bureau, the latest housing permit data is showing that demand has eased significantly as mortgage rates have risen. New residential permits registered a 10% drop from July 2022 to August 2022 and a 16.8% drop from April 2022 and are nearing pre-pandemic levels.
Riddleston adds: "However, as inflationary pressure subsides, the outlook over the medium to long term is expected to brighten; the Biden administration is continuing on its plan to push federal dollars into the ailing economy by directing investment into infrastructure, manufacturing, and energy sectors such as the landmark $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) and the newly introduced Inflation Reduction Act (IRA) and the CHIPS and Science Act, which will drive construction activity over the forecast period."
