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Global infrastructure: Short pain, long gain

Staff writer ▼ | June 30, 2016
Global spending growth of 5% per annum on capital projects & infrastructure (CP&I) is projected within four years, doubling the low rates of growth of just 2% expected this year.
Global infrastructure
Infrastructure   It is too early to comment on Brexit
By 2020, annual global infrastructure spending is forecast to reach $5.3tn, up from an estimated $4.3tn in 2015 (in constant 2014 exchange rates) according to PwC, underlining the long term strength of the sector.

The analysis by Oxford Economics for PwC’s capital projects and infrastructure team examines projected spending across seven regions and six key infrastructure sectors.

Given the recent volatility in the market, the report also examines two scenarios against the baseline projection - a high growth recovery and a hard landing in the Chinese economy (given China is the world’s largest CP&I market).

On the baseline outlook, using current economic projections for economic growth, while current spending is showing signs of CP&I growth, it will remain low - around 2% - for the coming year.

It will make a slow but sustained recovery to 2020, when spending will be at 5% or $5.3tn per annum. The largest percentage increases in global CP&I investment between now and 2020 will be in social infrastructure (for example schools and hospitals) and in manufacturing related infrastructure.

Recent slowdowns are a result of the decline in oil and commodity prices, availability of public and private finance, a slowdown in China’s growth rate and currency volatility which have all weighed heavily on the sector.

Slow growth was felt hardest in the Utilities sector, buffeted by a combination of subsidy cuts in Europe for renewable energy projects; sluggish global economic and trade growth, which reduces demand for electricity; and diminished private sector thirst for capital projects in the face of a negative commodities price environment.

The UK's recent decision to exit the European Union came after the research for this report was finalised.

It is too early to comment on the specific UK and global impact of Brexit in 2020, however, in the short term the additional uncertainty and volatility is likely to directly impact the UK capital projects and infrastructure market and indirectly impact the global CP&I market, although the latter is unlikely to be severe.