Is the global construction industry facing a synchronised slowdown?
We believe global construction activity is set to slow meaningfully (by >300bps), driven by residential and non-residential construction moving from a five-year CAGR of 5% to no growth by 2020, despite an acceleration in infrastructure spending (from annual growth of 5% in 2018 to a forecast 7% by 2020). We believe this slowdown, especially in residential and non-residential spending, in the most meaningful global construction markets – China, Europe and the US – will send shockwaves through the construction industry’s supply chains. In our report, we coordinate the efforts of more than 20 UBS analysts covering 15 sectors and more than 70 companies to analyse the impact on the supply chains of a synchronised slowdown of the ~USD8 trillion global construction market (~10% of global GDP). We also show the evidence captured by the second UBS Evidence Lab elevator and escalator global procurement survey, and identify which sectors and stocks are the most and least impacted by this new fundamental backdrop.
Which sub-sectors are most and least impacted?
From our in-depth review of the global construction industry and its supply chains, we conclude that equipment/engineering suppliers with larger exposures to Chinese new building and non-residential trends will suffer the most from a global synchronised slowdown. In contrast, we see favourable growth trends in infrastructure investment, renovation, services and building automation activities, favouring the rolling stock, electrical distribution (low voltage), locks and building automation segments.
Narrowing the cut: How will the elevator and escalator (E&E) industry fare?
Our top-down analysis and the UBS Evidence Lab findings show lacklustre fundamentals for global E&E new installations, with slower growth in China (60% of global installations), Europe and the US. We expect moderating OE pricing, but cost inflation has receded: as installations growth fades and the industry remains fragmented, we expect price competition to intensify. Global maintenance growth should be sustained by the recent expansion of the installed base.
Positively/negatively impacted by the theme
Those that we see being positively impacted have lower exposures to the non-residential and Chinese residential and non-residential construction segments, and have a positive bias to improvement, renovation and home automation trends. Industry suppliers set to be negatively impacted - are those with exposure to the new building cycle.