6 minute read
Global market outlook
Construction equipment sales have fallen back form the unprecedented high of 2021. A soft landing is expected, but there are of course risks and uncertainties around this.
Global construction equipment sales hit a record high of nearly 1.3 million machines sold in 2021 as stimulus spending, job protection schemes and low interest rates drove a boom in economic growth after the sharp downturn of 2020.
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That boom continued for most countries last year, the exception being China. Sales in the world excluding China grew 7 per cent in 2022, following on from a 19 per cent increase in 2021 in the same territories. In fact, sales could have been much higher were it not for the on-going supply chain issues and shipping bottlenecks (although shipping was getting back to normal by the end of the year).
In contrast, the Chinese market had a miserable year in 2022. Having boomed due to stimulus spending in 2020 and 2021, sales tumbled 39 per cent in 2022 due to the re-imposition of Covid lockdowns in numerous major cities, along with debt defaults and a general reset in the real estate market. The sharp dip in housebuilding was a particularly heavy blow for the construction equipment sector.
Despite the downturn in China pulling the global equipment market down by 2 per cent overall, 2022 still saw the second highest volume of machinery ever sold. Another positive was that order backlogs were so full and lead times so long at the end of the year in the world, excluding China, that it gave the industry confidence that good retail volumes would continue well into 2023, despite the weakening economic outlook.
Off-Highway Research’s forecast is for a 7 per cent decline in global sales in 2023.
Chris Sleight, Managing Director. Off Highway Research
This is a slightly steeper downturn than envisaged a year previously, due to the weakness of the Chinese market. Stripping China out of the equation, the remaining countries of the world will only see a 5 per cent downturn overall.
Off-Highway Research would still classify the 2022-2025 downturn as a soft landing. Only single-digit year-on-year falls in equipment sales are expected, and the volume of machines sold throughout the forecast period should stay above 1 million units per year. Prior to the current up-swing, such a volume was only achieved twice before.
Global sales of construction equipment by region, 2017-2026* (units)
Europe
Construction equipment sales in Europe rose 4 per cent in 2022 to 216,861 units. This increase from 2021’s already high level of 208,288 machines sold maintained the market at a high level, and comparable with the previous record set in 2007.
Global sales of construction equipment by type, 2021 (units)
Global sales of construction equipment by type, 2021 (US$ million)
The strongest growth in 2022 was seen in the larger markets of Southern Europe – most notably Italy, which saw sales rise an impressive 18 per cent, while Spain’s 17 per cent growth was also well above average. France also performed well with an 8 per cent rise in sales, thanks to broad demand for both heavy and compact equipment.
Growth in the UK was more subdued at 4 per cent, but the volume of equipment sold was the highest ever seen. Meanwhile the German market declined 1 per cent, but this must be seen in the context of the extraordinarily high number of machines which have been sold in the country in the last four to five years.
Off-Highway Research’s forecast for Europe is essentially for the market to stabilise at a high level. Although single-digit percentage annual declines in sales are expected for the next three years, the market is forecast to remain above 200,000 units over the medium term. Prior to the current peak, a volume above 200,000 machines sold was only achieved once before for a single year in 2007.
A slowdown in housebuilding due to rising interest rates represents a threat to compact equipment sales. However, Europe’s infrastructure markets are strong, which should stimulate sales of larger earthmoving equipment.
North America
North America was the pick of the major markets last year, with an 8 per cent increase in sales to take demand to a record high of 318,855 machines sold. Compact tracked loaders are now firmly established as the most popular equipment type in the region and mini excavator sales have also grown to a significant level. Sales of these machines have largely been at the expense of skid-steer loaders and backhoe loaders.
Although a modest 1 per cent decline in sales is expected this year, the market will still enjoy the second highest volumes ever seen. The long lead times for equipment mean that suppliers are confident of sales well into the third quarter of the year, even though rising interest rates are starting to cool-off the housing market.
While this is expected to lead to a fall in sales of smaller equipment types, infrastructure investment is on the rise in the region, thanks in part to the stimulus plans which were put in place during the pandemic years.
Outlook And Risks
The global forecast is for a soft landing, with modest downturns in sales over the next three years, but with volumes remaining at historically high levels. This is broadly based on the premise that infrastructure investment is maintained and that although interest rates are rising, they will only slow residential construction, rather than push it over a cliff.
However, there are risks to the forecast and they are almost entirely on the downside. Inflation was a serious issue throughout 2022 and although improving, it remained too high in early 2023. Add to that the war in Ukraine, which continues to heighten inflationary pressures worldwide and is therefore also exerting upward pressure on interest rates.
There have only been two previous peaks when global equipment sales exceeded 1 million units – just prior to the global financial crisis when the market overheated and then again in the early 2010s, driven by stimulus in China. In both cases, annual sales of more than 1 million units of equipment were only sustained for one year – 2007 and 2010.
But 2023 is likely to be a sixth consecutive year of annual sales in excess of 1 million units. When a slowdown in activity comes, excess young equipment in fleets around the world could be a barrier to new machine sales, exacerbating the slowdown for the industry.
On the other hand, a prolonged period of historically high volumes is not necessarily a problem. Construction equipment sales always grow worldwide over the long-term as the global population grows and with it the requirement for buildings and infrastructure. There are also demographic changes which drive the adoption of machinery such as skills shortages and higher wages for manual labour, as well as the retirement of the construction industry’s aging workforce.
Forecasting is a challenge at the best of times, but even more so when in uncharted territory.
