- While growing for the past decade, the construction sector did not “repair the roof while the sun [was] shining” to quote J.F. Kennedy. According to Euler Hermes’ proprietary data, on millions of companies across 70 countries, average sector risk ratings for demand, profitability, and liquidity did not improve. As a result, the construction is less prepared for a downturn. That is essential since construction is a crucial part of all economies (advanced and emerging) and plays a role in magnifying or reducing the impact of a cyclical slump. As a first sign of a turnaround, in the first three quarters of 2018, there were 41 large bankruptcies of construction companies (turnover exceeding EUR50m), more than in the retail sector (39).
- Five construction outlooks for 2019:
- The US: Construction to grow by +3% y/y in 2018 and +2.1% y/y in 2019. Residential market shows warning signs. Demand and operating margins below pre-crisis level.
- China: Construction to grow by +4.2% y/y in 2018 and +4% y/y in 2019. Rising leverage and high liquidity risk.
- France: Construction to grow by +1.6% y/y in 2018, and +1.5% in 2019. Weaker demand and operating margins. Liquidity, after a long period of improvement, is starting to show the first signs of stress.
- The UK: Construction to grow by +0.5% y/y in 2018 and +1.5% in 2019. Recovering demand, but crippled profitability and deteriorating liquidity. The uncertainty over Brexit continues to weigh on business and consumer confidence.
- Germany: Construction to grow by +2.9% y/y in 2018 and +2.8% y/y in 2019. Solid demand and profitability. However, liquidity has stopped improving and is showing first signs of deterioration.