Construction output expected to return to growth in 2011

Hundreds of construction projects ground to a halt, but the sector is expected to start growing by at least 5 per cent a year.

Construction output in the Emirates will contract until the end of next year, but start to grow again at an annual rate of at least 5 per cent between 2011 and 2020, a report says. Citing ambitious infrastructure plans and a growing economy, the Global Construction 2020 report said the hard-hit UAE construction sector would rebound, but with a smaller role in the country's GDP.

"There has been a deterioration in the real estate market in the UAE during the last 12 to 18 months, particularly in Dubai, but demand remains strong for infrastructure," said the report, which was compiled by Global Construction Perspectives and Oxford University's Oxford Economics. "The problem could be even worse in the commercial sector." Hundreds of construction projects around the Emirates have come to a halt this year after property prices began to fall and banks withdrew lending.

While the slowdown has hit construction of new homes, the Government hopes to offset the decline with increased infrastructure spending. Abu Dhabi alone plans to spend US$275 billion (Dh1.01 trillion) on infrastructure in the next five years. "We therefore expect, after a temporary slowdown in 2009-2010, that construction output in the UAE will increase by 5 to 7 per cent per annum between 2011 and 2020," the report said.

Sultan al Mansouri, the Minister of Economy, said recently that Abu Dhabi would spend $1tn on infrastructure projects over the medium term to stimulate the economy. "This will lead to extraordinary demand for building materials and technological innovations, thus boosting the economy further," Mr al Mansouri said. Global construction output was expected to grow 70 per cent by 2020 as emerging economies spent increasing amounts on infrastructure and development, the report said. This comes after record drops for the sector, which has seen output decline by $650bn since 2007 in developed countries.

"The recent slump in the global economy has been exceptionally severe and construction has been hit more severely than most industries," the report said. The global construction market is estimated to be worth $12.7tn by 2020, with developing nations representing $7tn - double their current output. China is likely to overtake the US as the largest construction market as early as 2018, the report said. Spending on transport infrastructure, utilities and government-related buildings in developing countries will rise by 128 per cent by 2020.

The recovery of the sector will include developed nations such as the US and Japan, which will see construction output grow by 35 per cent to $5.7tn by the end of 2020, the report said. [e-mail]