Despite its heterogeneity, the residential building segment continues to drive the growth of the ceramic tile industry | by Giuseppe Schirone
A total figure of around US $3,300 billion was invested in the residential building sector worldwide in 2016, equivalent to more than 4% of global GDP.
Like last year, the annual growth rate for world residential building in 2017-2018 (+3.4% according to the latest projections of the “Osservatorio Previsionale” or “Forecasting Report” produced by Confindustria Ceramica and Prometeia) is expected to outperform GDP, confirming the residential segment as one of the most dynamic growth drivers for the world economy.
These aggregate forecasts – which reveal a slowdown with respect to the excellent results of 2016 when global residential building growth surpassed 4% – represent the combined results of widely varying situations in different regions and countries.
In the traditional markets of NAFTA and Western Europe, which together account for 49% of total investments, the area with the best prospects for the current year is Western Europe, where in 2016 the overall residential building growth rate overtook that of the USA for the first time since 2008-2009. Contributing factors include the anticipated upturn in France and Spain, where growth is expected to reach 3% and 4% respectively, and the continued strong performance of Germany, which is projected to see a similar result to the +4% reported in 2016, only partly offset by the estimated slowdown in the UK and Italy.
Encouraging signs are emerging from France and Spain in terms of both the construction market (building permits and housing starts, including activity in the contract sector in the case of France) and the real estate market. In Germany, the record number of building permits issued in 2016 has led to forecasts of a significant new increase in investments in construction in a housing market that is still dominated by excess demand. In the UK the fall in house prices suggests a likely slowdown in construction activity, while in Italy, following the welcome if unexpected 3% growth in residential investments in 2016 (strongly influenced however by the increase in the cost-related component of real estate transactions), this year construction growth is unlikely to exceed +1.2%, in a context in which renovation will be the only growth segment.
The outlook is less favourable in the United States, where a slowdown in construction activity in the central months of the year is expected to lead to a lower annual residential building growth rate in 2017 compared to the previous year (unlike the situation shown in Figure 1, which refers to June 2017 before the above-mentioned data were published).
Amongst the new markets, the Gulf region (+4.9%) and Middle-East/North Africa (MENA) (+4%) are the areas that are likely to see the highest growth following that of 2016, although their performance is subject to the well-known factors of geopolitical uncertainty. In the Gulf region, the relatively sluggish state of the Saudi market (penalised by the fall in oil revenues) should be easily offset by the UAE and Iran, while in the MENA region (excluding the Gulf states), the urbanisation processes and public building programmes are expected to guarantee an annual investment growth rate above the world average.
In the Far East, the slowdown in Chinese building will be offset by the sustained growth of Indonesia, although the Indian construction industry – which was adversely impacted by the monetary reform in late 2016 and early 2017 – also appears to be heading towards a recovery. As for China, it is the measures adopted by the government (e.g. credit access conditions and restrictions on housing sales) that are causing a market slowdown in terms of both transactions and prices.
Latin America will continue to be penalised by the difficulties in the Brazilian market, while Eastern Europe is expected to see a gradual recovery in the Russian building sector, where the latest economic data suggest that the country is slowly beginning to emerge from recession, at least in the residential segment.
So to sum up, although the strong growth of 2015-2016 appears unlikely to be maintained either this year or the next, world residential construction is continuing to drive the expansion of the ceramic tile industry, albeit with a high degree of heterogeneity between different regions and countries.