U.S. is now world’s second largest market, overtaken by China in 2009
Global capital project and infrastructure spending to grow to more than $9 trillion per year by 2025, up dramatically from $4 trillion in 2012
NEW YORK, June 23, 2014 – Capital Projects & Infrastructure spending in the United States (U.S.) is expected to be $1 trillion annually by 2025, growing by an average of just over 3.5 percent a year, according to new analysis from PwC titled Capital project and infrastructure spending: Outlook to 2025. Currently, the U.S. is the world’s second largest market, having been overtaken by China in 2009. PwC estimates that the share of global spending in the U.S. will decline gradually over the coming decade to just over a tenth of total global spending by 2025 from 16 percent in 2013. Overall, global capital project and infrastructure (CP&I) spending has begun to rebound from the global financial crisis and is expected to grow to more than $9 trillion annually by 2025, up dramatically from $4 trillion in 2012. According to PwC, the recovery will be geographically uneven, led overwhelmingly by Emerging Asia, as spending shifts from West to East. Specifically, China’s annual spending is expected to reach over three times the level in the U.S. by 2025.
Overall, close to $78 trillion is expected to be spent globally between now and 2025 on capital projects and infrastructure. The report, for which Oxford Economics provided research support, analyzes fixed capital investment spending across 49 of the world’s largest economies – which account for 90 percent of global economic output – to estimate the scale of current infrastructure investment and assess the prospects for future investment from now to 2025. Underlying sector, demographic and urbanization trends will help shape which areas of investment will grow, while significant global events or disruptions could alter these projections.
“The economic downturn negatively impacted infrastructure in the U.S. over the past few years, with total spending only just recovering to 2008 levels in 2012,” commented Peter Raymond, PwC’s U.S. Capital Projects & Infrastructure Leader. “Looking ahead, relatively constrained government finances will slow the pace of investment growth in social and transportation sectors in the United States. However, shale oil and gas extraction will grow faster in the U.S. than in most other countries, driven by a relatively conducive policy environment. This should push total extractive investment to over $200 billion a year by 2025, and the U.S. share of total world oil and gas output from around 15 percent to 17 percent.”
The report reveals that while the U.S. extraction market will grow as social and transportation sectors slow, lower energy costs in the U.S. will boost competitiveness in heavy energy-using sectors. The report estimates that overall industrial output in the U.S. will likely be around two percent higher in the long-term than in a non-shale scenario. However, the impacts will be concentrated on heavy energy-using sectors, such as chemicals and metals. As such, the benefit to these sectors will be much greater than the economy-wide impact, spurring faster investment in these sectors than in other high-income economies. At the same time, “new economy” sectors will also continue to thrive in the U.S., with substantial investment in telecommunication networks, which PwC expects to increase from $77 billion in 2013 to $160 billion in 2025.
As the report shows, the Asia-Pacific market will represent nearly 60 percent of all global infrastructure spending by 2025, driven by China’s growth. In contrast to Asia-Pacific’s success, investment in western economies has been more constrained by the legacy of banking crises, fiscal austerity and a shallow economic recovery. Western Europe’s share will shrink to less than 10 percent from twice as much just a few years ago. While the rate of growth will be less for mature economies, North America is expected to fare better than Western Europe, where total infrastructure spending in nominal dollar terms is unlikely to reach pre-crisis levels until at least 2018.
“Emerging markets, especially China and other countries in Asia, without the burden of recovering from a financial crisis, will see much faster growth in infrastructure spending,” said Richard Abadie, PwC’s Global Capital Projects & Infrastructure Leader. “However, megacities in both emerging and developed markets – reflecting shifting economic and demographic trends – will create enormous need for new infrastructure. These paradigm shifts will leave a lasting, fundamental imprint on infrastructure development for decades to come.”
According to PwC, four main drivers of future infrastructure spending will determine the evolution of the global infrastructure market over the coming decade. They include:
Availability of funding and government finances
One of the key drivers of infrastructure investment is the availability of funding. Much infrastructure development is funded and implemented by the public sector, making government finance a key determinant of prospects. High public debt burdens will undermine public investment in some advanced economies.
Demographic factors also play a role in determining the type of infrastructure built, prioritizing education investment in some countries and healthcare spending in others. Aging populations, particularly in Western Europe and Japan, will mean an increased share of available social investment for health facilities. By contrast, in countries in Sub-Saharan Africa, the Middle East and many parts of Asia-Pacific, populations will remain weighted towards school-age cohorts for the foreseeable future, pulling resources towards education infrastructure.
Continuing process of urbanization
The level of economic wealth will have an impact on the type of infrastructure required. The continuing process of urbanization generates demand for investment in utility supply, while at the same time making it more cost effective and realistic. In China, Indonesia, the Philippines, Ghana and Nigeria, it is expected that 10 percent or more of the total population will shift from the countryside to cities between now and 2025.
Natural resource endowments
Endowments of natural resources and policy frameworks around exploiting them will also play a key role in determining the pattern of infrastructure spending. The report forecasts that the US, Canada and Brazil, buoyed by discovery of new reserves and an openness towards private (and foreign) investors, will increase their share of global oil output over the coming decade. That will mean increased extractive spending.
“Growth in emerging markets, together with increasing urbanization and shifts in demographics, will drive the majority of investment globally. Infrastructure spending is necessary to provide the basis for security, health and continued prosperity in these economies,” said Raymond. “It is crucial for policymakers, citizens and businesses to understand the factors that drive demand for infrastructure investment as well as the factors influencing economies’ capacity to invest.”
This report provides the first consistent data analyzing projected capital project and infrastructure spending across the globe. For investors, public officials, and companies planning capital investments, it highlights the sectors and countries expected to benefit from this investment resurgence. It also provides insight on the factors driving the expected investment growth.
For a full copy of Capital project and infrastructure spending: Outlook to 2025 please visit: www.pwc.com/cpi-outlook2025
NOTES TO EDITORS
Research findings for Capital project and infrastructure spending: Outlook to 2025 incorporate 49 of the world’s largest and fastest growing economies. This sample covers around 90 percent of total world fixed investment spending (in 2012), and as a result the estimates are a good proxy for the total infrastructure market.
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