The Fundamentals in many emerging markets have weakened, affected as they are by the slowdown in China.
While global real GDP grew at a modest 2.5 per cent in 2012, and is expected to be around the same level for 2013, the expectation for the next three to five years is more positive. Investments are a central part of GDP, thus GDP growth reflects real investments and implicit capital goods demand.
The economic growth projections for the US have steadily improved as the country has shown strength coming out of the financial crisis, benefiting from a buoyant housing market. New housing permits are increasing and are now at a level not seen since 2008. Construction spending is expected to grow and combined with a likelihood of continued low interest rates, the demand outlook for equipment is positive.
The outlook for Japan has improved on the back of new economic policies, while the outlook in Europe is still shadowed by the debt crisis near term.
The Fundamentals in many emerging markets have weakened, affected as they are by the slowdown in China. But despite sluggish growth, China is still growing. Both real fixed investment and construction spending is expected to grow by up to 8 per cent annually in the coming years.
In Latin America, Brazil’s economic growth has been disappointing, caused by too low investment levels. Still, expectations for future grow thin infrastructure spending are likely to drive equipment demand. As the Bric stars have faded somewhat, other emerging countries such as Indonesia, the Philippines, Colombia and Mexico are growing in importance.
The next wave of high equipment demand growth may well arise from a new set of emerging countries. Overall, despite the many clouds in the sky at the moment, future demand for construction equipment is evident. There are areas in the global economy that are doing better than they have in years and long-term fundamental trends such as increasing urbanisation and a growing population are support rising demand for construction equipment.
Increasing urbanisation and population growth:
The UN forecasts that the global population will increase from 7.2bn people today to 9.6bn in 2050. Africa will account for more than half of that 2.4bn increase. The UN also expects more than 6.3bn people to be living in cities by 2050. This implies that between 2000 and 2050 developing regions will have 3.2bn new urban residents (larger than the world’s total population in 1950!).