Research published today by PwC and economic forecasting company Oxford Economics projects several possible scenarios, all of which predict stable long-term growth in infrastructure investment.
Currently, the rate of growth has fallen back to 2% with global annual spending on infrastructure and capital projects in 2015 worth $4.3tn. By 2020, the report estimates growth to have reached 5%, with spending at $5.3tn.
The report found that while growth will remain low for the coming year, it will make a slow but sustained recovery to 2020. The largest percentage increases will be in the area of social infrastructure, such as schools and hospitals, and infrastructure related to manufacturing.
A positive outlook remains likely despite recent market fluctuations, which the report says underscores the long-term strength of the sector.
Recent slowdowns are a consequence of a decline in oil and global commodity prices, lower availability of public and private finance, China’s tapering growth and market volatility, it stated.
The utilities sector has been hit hardest, compounded by a cut in subsidies in renewable energy in Europe. Also, sluggish global economic growth had a negative impact on this area, resulting in a reduced demand for electricity. The report also blamed a shrinking appetite for capital projects in the private sector, in the face of a negative price environment.
The report was finalised before the UK voted to leave the European Union and PwC said it was too early to predict the impact of Brexit on long-term infrastructure. It acknowledged that the volatility in the immediate aftermath of the vote would directly affect UK infrastructure spending projects and also affect the global infrastructure market, although this was unlikely to be severe.
Richard Abadie, of PwC’s capital projects and infrastructure team, said even in the current volatile environment there was likely to be opportunities.
But he added “sponsors and investors are being very selective on which projects to proceed with, for example ensuring mining and oil and gas projects are profitable at today’s depressed commodity prices”.
He also said that companies would seek to remain invested, because the long-term forecast for the sector is still strong.
Peter Raymond, also at PwC, suggested it was a broadly positive picture for the sector.
“There’s money out there – at lower cost – looking for good bankable, viable projects.”
He also highlighted a renewed emphasis on infrastructure’s role in economic development and said recent changes in development banking are playing an important role in “de-risking” these projects.
