The IMF and the World Bank are expecting the world economy to face several challenges in 2019, as some key economies cool down. As governments face issues that will affect their decisions for investment in the construction sector, how will the global sector be affected by an expected economic slowdown during the year?
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2019 could be a proving year for the cement industry at worldwide level as the global economy is expected to face several challenges, which in turn could dampen investment in construction projects, and lead to a decline in consumption of cement.
The slowing economic growth
The forecast for the global economy in 2019 has been lowered, with the IMF decreasing its global growth expectations to 3.5 percent, 0.2 percentage points below its October report, while the World Bank is projecting global growth to slow down to 2.9 percent during the year in its most recent Global Economy Prospects.
The slowdown is mostly expected due to the impact of the trade conflict between the US and China, among others, and to softening international investment and production, as well as financial distress in some of the strongest economies, such as Germany and China.
Financial policies around the world are also expected to tighten as economic conditions are set to worsen, which could make it more difficult for investors to borrow credit, a problem that could impact the industry in both the growth of supplies, and in the number and size of projects, leading to a decline in demand.
The Chinese headwinds
China’s sluggish economy in 2019 is one of the most concerning factors for the global cement market, as the country is one of the largest producers and consumers of cement. The IMF and the World Bank are forecasting the Chinese economy to grow by 6.2 percent in 2019, a pronounced decrease from the exponential expansion from the previous decades, and one of the smallest since 1990, according to Bloomberg.
Cement companies in the country are expected to shut down some of their capacity due to tighter environmental regulations, which could offset the increase of almost four percent per year between 2018 and 2023 projected by CW Research for global ex-China.
In its latest Global Cement Volume Forecast Report, CW Research projects cement capacity in China to slow down and contract at an annual average of 3.0 percent between 2018 and 2023, as the country rolls out new capacity rationalization efforts related to its new environmental policies.
Likewise, CW Research forecasts Chinese cement demand will continue sliding through 2023, whereas consumption in global ex-China is poised to improve by one percent during the same period.
The lack of investment in the real estate and infrastructure sectors by the Chinese government is one of the factors weighing cement demand down, as the market’s consumption is estimated to have decreased by almost three percent from 2017 to 2018, to 2.55 billion tons.
One, two, three, four, I declare a trade war
The trade tensions between the United States and some of its major trade partners, including China and the European Union, are also one of the major dampeners for the global cement trade from 2019 onwards.
Some investors are holding out to see if the most recent trade truce announced in early December at the G-20 summit, in Argentina, will achieve any positive outcomes, especially as the recent tariffs and trade barriers concerned many raw materials used in the construction industry, including iron, steel, wood, and fuels, such as coal, diesel, and petcoke (...)
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