Following dramatic inflation in 2021 due to the bounce-back from covid-19, any thoughts of a more sustainable recovery in 2022 were dashed by the Ukraine conflict. In international construction markets, elevated prices for materials such as timber and steel were followed later in 2022 by unprecedented increases in the price for energy-intensive materials such as cement, brick and glass as the huge spike in energy costs in August fed through to markets globally. The situation was particularly acute in Europe as countries rushed to wean themselves from a reliance on Russian oil and gas, while governments introduced measures to protect businesses and consumers from the unprecedented energy price spikes.

The year also saw soaring interest rates in many parts of the world as central banks sought to control rampant inflation. This has led to client challenges around viability, with the cost of finance increasing by 400 basis points or more. It is by no means certain that central banks will be able to trace a path to low inflation by the end of 2023. While structural inflation associated with energy costs will drop out, core inflation has proven to be more sticky, as evidenced by April’s inflation reading for the UK. The prospect of higher interest rates for longer will continue to weigh down commercial and residential investment.

Overall, prospects for 2023 are uncertain. Forecasters hope for a soft landing in Europe and North America, but that might be difficult to engineer, particularly as recent turbulence in the banking sector spreads further. Nevertheless, the International Monetary Fund projects growth of 2.8% for 2023. A 5%-plus expansion in China, India and South-east Asia will compensate for much weaker prospects in North America and the eurozone.

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