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Global Construction Industry Faces High Level of Risk

According to the latest Timetric Construction Risk Index (CRI), the overall level of risk facing the global construction industry picked up in the third quarter of 2015, rising to its highest level in four quarters.

This reflects a worsening risk profile across most emerging markets, which offset a marginal improvement in that for advanced economies. Fifteen of 50 countries in the CRI recorded improvements in their risk profiles in the third quarter, notably the United States and South Korea, the former posting continued growth in its economy and construction industry, and the latter benefiting from a recent upgrade of its sovereign credit rating. As a result, the United States rose by two places to fourth place in the rankings, remaining behind a top three of Sweden, Switzerland and Singapore.

There is no change at the bottom of the rankings, with Greece, Argentina and Venezuela remaining the highest risk countries in the CRI. Malaysia was the worst performer in the third quarter update, with its risk profile deteriorating in the face of a major corruption scandal engulfing the country’s prime minister and a sharp decline in the ringgit (currency).

Based on aggregate risk scores for the major regions, the Asia-Pacific region was the worst performer in the third quarter update. In addition to Malaysia’s problems, there are particular worries over the outlook for China’s economy, with the country’s policymakers facing the challenge of rebalancing the economy while still trying to maintain a high rate of growth. In view of China’s significant role in supporting growth in Asia and also in its trading partners, a sharp slowdown in China’s economy would be felt widely across the globe.

Low oil prices continue to contribute to a worsening risk profile for the Middle East and Africa, derailing investment in new and ongoing infrastructure and buildings projects. However, Eastern Europe remains the highest risk region, in part owing to impact over the past year of the fallout from Russia’s intervention in Ukraine.

According to Danny Richards, lead economist at Timetric’s The Construction Intelligence Center, “The likelihood that the U.S. Federal Reserve will raise official interest rates in the near future, and thus bring to an end nearly seven years of ultra-loose monetary policy, will have severe implications for many emerging markets that have become accustomed to cheap foreign capital. Indeed, a return to more normal levels of the cost of borrowing in advanced economies, particularly the United States, will result in capital flowing out of emerging markets and contribute to a further weakening in their currencies.”

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