New forecasts from Off-highway Research say that global construction equipment sales will fall 19 per cent in 2020 to 891,000 units, from the cyclical peak which was reached in 2019.
Off-Highway Research’s forecast prior to the global outbreak of Covid-19 was for a modest decline in sales from 2020-2022, before the resumption of growth. This was based on the premise that construction activity would be reasonably well-sustained in this period through a focus on infrastructure projects worldwide, while other components of construction would slowdown or fall in the early 2020s, before swinging back to growth in the middle part of the decade.
The expected volume in 2020 – 891,000 machines is not actually that bad in the historical context. The trough in 2015 and 2016 was deeper. However, the problem for the industry is the uncertainty which the pandemic brings to markets. There is certainly a downside risk to even this revised forecast and any second wave of infections would put the anticipated recovery in 2021 in doubt.
A key point is that the downturn is expected to be relatively mild in China with only an 8 per cent fall in sales this year. This has a bearing on the impact for different OEMs, as about 75 per cent of demand in China is met by indigenous manufacturers. They will benefit the most from the cushion of a relatively mild domestic downturn. The Chinese OEMs are also less exposed to the more sever declines which are expected in other parts of the world. Outside China the downturns for different regions are forecast to vary between 20-30 percent.
In Europe construction equipment sales are expected to fall 20 per cent this year compared to the cyclical high of 187,396 units sold in 2019. This is a revision of Off-Highway Research’s previous forecast, which gave the outlook for 2020 as a 4 per cent decline.
It is striking that the picture varies significantly from country to country. Those where construction was able to continue through the lockdown, where the pandemic was less severe or where measures to halt the spread were most effective are forecast for milder downturns. Austria, Denmark, Germany, and Portugal would fall into this category.
In contrast, there are countries such as France, Italy, Spain and the UK and Ireland where there has been a greater impact on society as a whole and the industry is facing a more difficult outlook.
A further factor is that some countries’ markets had peaked in 2019 and demand was overheating. The Covid-19 pandemic may be the catalyst that causes the bubble of the last few years to burst, leading to sharp downturns. Finland is an example of this.
The previous 2020 outlook for North America was not particularly bright. Sales had clearly reached a peak in 2019 and without any fresh funds for infrastructure investment – an even more unlikely prospect than usual with the US presidential election due at the end of the year – the region was already looking at a year of moderately declining demand for construction equipment.
The outlook now is for a -30 per cent drop in equipment demand in 2020 to 135,800 units. This would be one of the more severe downturns being seen in any major market and reflects the fact that the Covid-19 pandemic has come on top of at a time when the market was weakening anyway.
But North America is also a dynamic market capable of steep recoveries as well as declines. Accordingly, the 14 per cent growth forecast for 2021 is one of the more robust improvements expected anywhere in the world next year.
Elsewhere in the world, the expectation is for falls in demand this year of between 10-30 per cent, depending on the duration of the lockdown (if any) and the speed of the recovery.
However, and this cannot be stressed enough, there are a lot of uncertainties and assumptions baked into any forecast at the moment. These are generally that economic activity will return to some sort of ‘normal’ by the end of the year and that there isn’t a second wave of infections. They both feel like big ‘ifs’.
For more information, visit www.offhighwayresearch.com