The global construction industry took a hit from the lockdowns and other factors resulting from the COVID-19 pandemic. However, Allianz Global Corporate & Specialty's (AGCS) latest study expects the global construction market to see solid growth once the pandemic is done.
Why the positive outlook? The report determined that the signs showing a strong growth outlook for the construction industry include rising populations in emerging markets, and significant investment in alternative forms of energy such as wind, solar, and hydrogen and power storage and transmission systems.
Another recent study by Marsh and Guy Carpenter, “Future of Construction: A Global Forecast for Construction to 2030,” also saw that the global construction industry remained resilient during the pandemic and predicts that that global construction output will grow by 42%, or US$4.5 trillion, between 2020 and 2030, mainly due to government stimuli and the demand for residential construction.
AGCS's study claimed that government spending on infrastructure and the transition to a net-zero society could be the key to helping the construction market thrive post-pandemic, noting that shifting to electric transport will require investment in new plants and battery manufacturing facilities and charging infrastructure.
It also expects buildings to improve their carbon footprint and improve coastal and flood defences and sewage and drainage systems in many catastrophe-exposed regions in response to more frequent weather events.
At the same time, the insurer expects governments in many countries to plan major public investments in large construction infrastructure projects to stimulate economic activity after the pandemic crisis and drive the low carbon transition.
Yann Dreyer, global practice group leader for construction in the global energy and construction team at AGCS, said the pandemic has changed the construction industry dramatically.
“The industry faces new challenges around supply chain volatility and spiking material costs, skilled workforce shortages, and the heightened focus on sustainability. In addition, the accelerated deployment of cost-cutting strategies and implementation of new technologies and designs may result in accelerated risks for construction companies and insurers alike,” Dreyer said.
“Continued risk monitoring and management controls will be key moving forward. Together with our clients, we will help manage these challenges as AGCS is committed to the construction industry as a key target sector for our growth initiatives.”
However, the report warned that the expected growth of the construction industry could bring challenges. In the medium term, for example, sudden surges in demand could put supply chains under additional pressure and exacerbate existing shortages of materials and skilled labour, resulting in schedule and cost overruns.
Many in the industry might also need to accelerate the implementation of efficiency and cost-control measures if profit margins take a hit from the economic impacts of the COVID-19 pandemic.
According to AGCS, design defects and poor workmanship are some of the leading causes of construction and engineering losses, accounting for around 20% of the value of almost 30,000 industry claims examined between 2016 and the end of 2020.
Expanding clean energy also brings new risks, including the increase in costs associated with delays or repairs in offshore wind projects as they grow in size and move further out to sea and into deeper waters.