Virtually every industry around the world that you can imagine has been affected by the coronavirus. One that has greatly felt its impacts, and will continue to feel its impacts for some time to come, is the global construction market. European International Contractors (EIC) notes that the effects of the coronavirus on the global economy are even greater than those that were experienced after the global financial crisis of 2007 to 2008. It is theorized that this is because all sectors of the global economy– including households, businesses, financial institutions and global markets – were hit simultaneously, unlike the gradual worldwide impact seen in 2007-8. Countries that are highly dependent on economic sectors that have been the most affected, like tourism, could be expected to suffer the most.
The coronavirus is impacting labor and materials in the construction industry (among other things). Because of this unprecedented outbreak, product delivery, liquidity of companies and whole business models are being challenged like never before. Here, we will examine in greater detail how COVID-19 is affecting the worldwide construction market.
Construction Market in the United States
According to the online publication Engineering News-Record, as of April 16, 2020, construction is still allowed to continue to occur in all 50 states except for Nevada (unclear), New York, Michigan, Pennsylvania (where it is set to resume May 1), New Jersey, Vermont, and Washington states. Construction has been declared to be an essential industry in most states and has therefore been permitted to keep going. In the states mentioned above where construction was disallowed, construction was deemed to be non-essential except for public infrastructure, housing, and healthcare projects.
Employment in the construction industry in the United States declined in 20 states and in the District of Columbia in March, the first month that the industry in the U.S. was affected by social distancing measures and quarantines. According to the Associated General Contractors of America, the federal Paycheck Protection Program has allowed many national construction firms to hire or retain employees despite project cancellations. Let’s look further at the impacts of COVID-19 on the construction market in a few select states in the nation.
Construction projects are continuing in the Mountain State, according to Steve Roberts, president of the West Virginia Chamber of Commerce. The state’s government officials see construction as wealth-creating and having a ripple effect on the economy of the entire state, and have therefore allowed it to continue under precautionary measures. The Associated General Contractors of America says that West Virginia added 15,800 construction jobs in 2019, an increase of 44.6 percent. In 2020, many of West Virginia’s construction jobs have been delayed, but many more are still ongoing, under COVID-19 social distancing precautions.
According to ENR California, construction within six Bay area counties (Alameda, Contra Costa, Marin, San Francisco, San Mateo and Santa Clara, plus the city of Berkeley) was halted in April 2020 due to shelter-in-place orders. In San Francisco, all construction projects except for public works and all housing construction were shut down. Most construction in the Bay area has been prohibited unless it relates to healthcare facility construction that is directly related to COVID-19. The mayor of Los Angeles also announced construction site safety guidelines to keep some essential construction sites up and running.
Oklahoma, Utah, Wyoming
In these three states, construction has been deemed to be essential and projects are therefore ongoing. Some localized restrictions have been put into place, however. Social distancing measures are supposed to be followed by all construction workers within these states, as in any states in which construction still occurs.
Global Construction Market
As for worldwide construction, ResearchandMarkets.com recently published its report, the “Global Construction Outlook to 2024 (COVID-19 Impact”). In the report, it is noted that projected growth in the construction market in 2020 has been revised down to 0.5 percent (from an initial projection of 3.1 percent before coronavirus). This, however, assumes that the coronavirus outbreak will be contained in the world’s major markets by the end of the second quarter of 2020, which is not guaranteed. Even if the outbreak is contained by then, researchers note, there will be an ongoing impact on private investment in global construction.
It is estimated in the above-mentioned report that most worldwide governments and public officials will attempt to spend more on infrastructure projects in order to reinvigorate the global construction industry. Such increased spending is expected to occur in energy, utilities, and transportation infrastructure construction projects. Due to lower interest rates, more companies should be able to borrow money, but they can only do so if their financial standing is adequate. Global governments will also be spending more by giving money to weaker, smaller companies, leaving less money available to invest in infrastructure.
Global Consequences of COVID-19
According to the EIC, there are three key global consequences of COVID-19 on the global construction market.
The first global consequence that the EIC identifies as being due to COVID-19 is, of course, a worldwide economic slowdown. According to statistics obtained the Organisation for Economic Cooperation and Development (OECD), worldwide economic growth could drop to just 1.5 percent in 2020. All G20 economics have been revised downwards for 2020, with the greatest impact being within the travel sector, confidence, financial markets, and disrupted supply chains. The direct disruption of the global supply chains and weaker demand for goods and services will all contribute to the global economic slowdown.
Decrease in Supply and Demand
The second major global consequence of the coronavirus is that there are significant drops in both supply and demand worldwide. Supply will be disrupted because of morbidity, mortality, restricted mobility and higher costs of business (due to restricted supply chains and tighter credit lines). Demand is expected to fall because of greater uncertainty, greater precautionary behavior and rising financial costs that restrict the public’s spending capabilities. Although countries have put care packages in place to help their citizens, relieving debtors’ obligations on such a large scale can undermine a country’s financial soundness, misallocating subsidized credit and keeping companies that were already not viable before the crisis, afloat. All of this could restrict a country’s productivity growth later, once the crisis is over.
Risks for Debt Sustainability in the Developing World
The third major consequence of COVID-19 is that debt sustainability can be increased. Wide-scale debt relief policies for the 75 poorest countries worldwide have been put into place, restoring countries’ debt sustainability instead of investing in their economic recovery. In the long run, this is not a sustainable practice and does not help developing countries to recover economically from the coronavirus crisis.
How The Construction Market Is Feeling the Impact of COVID-19
EIC says that the coronavirus’ impact on the global construction market could be highly detrimental. The organization has noted that there are four main impacts of the coronavirus on the global construction market.
Impact on Health, Safety and Employment
The first impact EIC has noted that the coronavirus has on the global construction market is on health, safety and employment. Large-scale quarantines have resulted in stalled construction sites, many of which have become non-operational, at least in part, in order to apply social distancing rules and prevent further outbreaks. Contractors are considering both the physical and mental health of construction workers, as anxiety has been heightened during this crisis. Many contractors have introduced short-term working conditions in order to keep business moving and prevent having to lay off construction workers.
Delays in Construction Material Supplies
The second impact the EIC has noted of COVID-19 on the global construction market is in delays in construction material supplies. Countries that have been heavily affected, like Italy and China, have shut down production sectors, leading to a decrease of production of materials necessary to the construction industry, like cement and steel. Construction contractors who rely on goods and materials from China will likely face higher costs and shortages of goods, all resulting in slower completion of projects. This will lead to higher prices for construction projects, and result in the cancellation of more construction projects. Delivery of materials is also impacted as public transportation and travel has been greatly limited worldwide. Equipment rental companies are also facing a challenge, as their equipment is being left sitting idle on non-operative construction sites.
Legal and Administrative Impacts
Thirdly, EIC considers the legal and administrative impacts of the coronavirus on the worldwide construction market. Contractors may be forced to go to court, as smaller companies go bankrupt and cannot deliver supplies that were promised to them. Cross-border projects may become a challenge as quarantine periods end in one country but may continue in its bordering country. The EIC notes that contractors should claim time and financial coverage entitlements as early as possible to avoid potential problems later on.
Distorted Demand and Deterred Financiers
The fourth impact the EIC sees of the coronavirus on the global construction market is that of distorted demand and deterred financiers. Although countries are receiving financial support to cover their revenue losses, on-going expenses and lack of income will place a huge financial burden on the construction sector. Production output is expected to decrease by 20 to 40 percent. Investment in public infrastructure will likely be forgotten, hitting contractors who work in public infrastructure particularly hard. Financing may completely dry up, giving contractors new challenges to face such as lack of payment for ongoing projects, lack of financing for future projects, suspension of manufacturing and worksites, travel restrictions for workers, less welfare support for workers, cost overruns, and delays. Meanwhile, worldwide governments are trying to cover the short-term losses of exports of goods and services by implementing short-term export credit insurances.