In addition to the general economic development of individual countries and regions, the economic performance of the Wilo Group is influenced in particular by the construction and sanitary industries. The expected future development in these industries is presented below. The country-specific definition of the regions is based on the segment reporting of the Wilo Group.
Continued, broad upturn in the European construction industry
The ifo Institute and the Euroconstruct industry network still assess the prospects for the European construction industry positively, but more conservatively than before. This is due to the uncertainty revolving around the UK’s decision to leave the European Union, rising interest rates and imponderables in the banking sector. Real growth of European construction output of 2.1 percent is now forecast for 2017 (previously 2.7 percent). At 2.1 percent, growth in Western Europe is expected to slow, while the construction industry is set to expand everywhere apart from the UK. A revival is expected in France, Spain and Italy. Supported by EU-funded projects, the construction industry in Eastern Europe is likely to grow by 3.5 percent. Up to and including 2019, the forecast assumes positive growth rates across Europe in residential and commercial construction, civil engineering and building modernisation and maintenance. In the medium term, there will probably be further government measures to promote CO2 savings. This is likely to support investments in heat insulation and the modernisation of heating and air conditioning systems.
The order situation in the German main construction sector improved at the end of 2016. According to the German Federal Statistical Office, building permits in building construction increased at a rate well into the double figures, both for residential (new buildings and conversions) and commercial construction. However, mitigating the housing shortage in conurbations will require substantially higher investments in residential construction. The IfW expects construction investment to grow dynamically in 2017 with a 3.1 percent increase in real terms, while commercial construction will virtually stagnate. Public-sector construction is likely to provide palpable stimulus again with an estimated growth rate of 3.5 percent. The dominant segment, residential construction, will remain the most significant driver of construction activity with estimated growth of 4.4 percent.
The ifo Institute and the industry association VDS expect further, albeit moderate growth in the German sanitary industry of a good 1 percent to over EUR 24 billion in 2017. The heating industry likewise has a positive outlook. Due to the high average age of heating systems, the majority of the demand going forward is set to continue to consist of demand for replacements. According to the Federal Association of the German Heating Industry, 67 percent of the 21 million heat generators are not efficient. Since August 2016, new measures to promote the modernisation of heating systems have been in place in Germany: the replacement of two million pumps and the optimisation of 200,000 heating systems are to be supported every year until 2020. The costs for this are to be subsidised at a maximum rate of 30 percent.
Infrastructure investments stimulate the construction industry in Asia
In light of the population growth and unchecked urbanisation, China is facing an immense, long-term challenge to create housing and jobs. In addition, the severe environmental pollution necessitates high investment, including in climate and water management. The German Federal Ministry for Economic Affairs and Energy (BMWi) estimates that around EUR 37 billion a year is invested in China’s water management alone. Ambitious environmental protection targets have been enshrined in the five-year plan (2016–2020), which assumes population growth of 45 million in the next five years. Among other things, water consumption has to be reduced by 23 percent in relation to gross domestic product. This requires efficient technologies and provides huge potential for foreign suppliers of filters, valves and pumps. In this area, the prospects for 2017 and beyond are positive. In contrast, residential construction is likely to remain problematic in 2017.
For the Indian construction industry, the signs are pointing to growth in the long term. Urbanisation continues; 40 percent of the population are expected to live in cities by 2030 (compared to 32 percent today). The state has launched projects to mitigate the housing shortage and create affordable housing. There is also a plan to establish 100 smart cities. In addition, India is looking to substantially modernise its infrastructure. There are currently 20 ongoing, large-scale projects just for fresh drinking water and wastewater treatment. Demand is immense, the infrastructure dilapidated: half of all drinking water is lost on the way to the consumer; only 10 percent of wastewater is treated. Nonetheless, the construction industry is initially likely to suffer from the cash reform in 2017. In the past, very large quantities of cash used to flow into the property market.
After the Korean construction industry boomed last year, the pace of growth is expected to slow in 2017. In addition to high vacancy rates in office buildings, the residential construction sector is also threatened with overcapacity thanks to the recent boom. High private debt is also likely to slow this trend down. The central bank estimates that the growth in construction investment will slow to 4.3 percent in 2017.
The large countries of Southeast Asia are pushing the expansion of infrastructure. Indonesia has continued to ramp up the development plan for energy, water and maritime transport. In Malaysia, government investments are driving the construction sector, although activity in building construction is flagging. With its 2022 infrastructure programme, Thailand is providing strong, long-term stimuli for the transport sector. In addition, sustainable and energy-efficient building guided by the US LEED certification is gaining in importance there. The Philippines are also investing massively in infrastructure, and increasingly in water management. The long-term prospects for the construction sector in Southeast Asia therefore remain positive.
Construction industry in Russia set to recover slightly
The environment for Russia’s construction industry is likely to remain difficult in 2017 as a result of the sanctions. The worst could be over, however, especially as government revenue is set to increase thanks to rising oil and gas prices. The central bank has announced a relaxation of the restrictive monetary policy provided the recently decreased inflation rate stays at 4 percent. This could tend to improve conditions for mortgage borrowing. The construction industry is expected to be supported firstly by large-scale government projects, such as the pipeline construction and the World Cup. Secondly, direct investments from foreign companies are likely to rise sharply as a result of the policy of import substitution and promotion of domestic production.
In Turkey, the outlook for 2017, including for the construction industry, is extremely uncertain due to the political situation. However, development could be more robust in this sector than in others. Despite a drastic slump in the confidence index for the Turkish economy as at December 2016, the construction sub-index remained stable. In addition, the number of building permits had exceeded the low level of the previous year by the end of September, namely by 5.0 percent in terms of buildings and 8.1 percent in terms of homes.
In Africa, the environment remains risky and uncertain in 2017. Due to the very strong population growth and pronounced urbanisation, which necessitate huge investments in residential construction, individual countries and selected projects offer attractive opportunities in the long term. The immense backlog in terms of infrastructure, especially drinking water and wastewater management, is likely to be another driver.