It is tremendously difficult to provide any meaningful predictions accurately but instead of saying what might happen it is far better to look back and establish what was going on and why, and only then the pattern for the future might, just might become a bit clearer.
First of all, why have we witnessed a golden era of construction activity of the past decade or so? Tremendous amounts of available capital have enabled the kind of economic growth the world has never seen before. Whilst we still had some hard currency which the post WWII growth has been marked against, there was no such hard currency in the past decade or so. The growth was completely and fully fiat-currency-based (belief-based). With other words, the created value was thin air that worked as long as the growth propelled further growth. The trouble with this kind of a fragile close-to-chaos system is that once the chain is broken the whole system falls apart (the good old weakest link principle).
This always happens and has
always happened but this time the self-propelled belief system went so far that
it surpassed the real economy several times (or even several dozen times). Yes,
this has created explosive growth in countries like China and India and spurred
economic frenzy in whole regions including the Middle East but it has also led
to tremendous excesses in our capacity to produce just about anything. These
excesses are now actually beneficial because they act as preventative buffers
to inflation that would normally result from printing money (err quantitative
easing, sorry) but they are devastating for construction. Why? Well, you see,
when Toyota deals with excessive capacity its managers simply reduce production,
shut a few factories, lay off a few thousand people and weather the storm with
further improvements to their already fantastic system. It’s a continuous and
steady production flow they are dealing with.
A typical construction company’s excessive capacity cannot be dealt with by shutting a few factories because there are no clearly defined entities of that sort. On the other hand laying off people doesn’t help either because most do not employ their own workforce anyway. Construction companies are project-based and they rely on a continuous flow of projects to maintain their cash flow and once this is broken, the system very quickly falls apart. There is very little buffer to play with (if any at all nowadays). Excessive capacity in construction is represented by a number of projects companies are involved in. The result of excessive capacity in an economic storm of current proportions for construction will be sudden and quite surprising complete collapses of very large companies. This has happened before, as we all very well know, but we have never had such an excessive capacity before.
Why is it all still working? Well, massive government stimuli and inertia is the answer. They now fuel the second mini wave of artificial growth that keeps the order books full despite the recession. However, governments haven’t addressed the basic problem of the fiat economy so nobody in the world can say for certain how much money the banks actually need to cover all the losses making quantitative easing more like shooting in the dark, and once this stops we will enter into the second phase of recession. Governments around the world will have to stop printing money one day and public spending will have to be severely cut but no political party is willing to admit just how harsh these cuts will actually be. The point is that once this happens the order books will suddenly dry out and that will then lead to the kind of collapses I was talking about earlier.
The solution? Hardly any available, to be honest, but my informed guess would be to go for little pockets of activity in countries that still rely on the real economy and build a total-package solutions. The clock is ticking and in construction it takes time before a contractor can grasp the market to a self-sustained level so moving ASAP where nobody else dared to go might be the major success factor. So what about the predictions? Well, it will certainly be much worse before it gets any better and this may take a few more painful years.
