The Chinese growth engine; which has led the pace of the market for over a decade now; is seemingly undergoing a major overhaul with the Chinese market for construction equipment having almost halved in 2015 with economic growth slowing down to the lowest in over 25 years amid continued financial markets volatility as the country strives to transition to a more consumption driven economy with limited reliance on manufacturing & heavy industries which has impacted the industry significantly.
Brazil & Russian economies, on the contrary, have been impacted severely by the energy sector downturn, in addition, to the ongoing political crisis in Brazil with pressures likely to prevail across these economies over near term. Additionally, the ongoing mining slump with continued weakness in commodity prices and the downturn in energy sector with oversupply driven, sustained slide in crude oil prices have collectively further exacerbated and worsened the situation for the industry.
The North American market has been the only saving grace as of-late with the U.S. Economy continuing to prove itself as the stable cornerstone of the global economy with steady economic growth momentum followed by Europe which continues to make slow economic recovery.
The OECD & IMF, however, have already cut their global economic growth forecasts for 2016 to 3.4% and the IMF has termed the global economy as highly vulnerable to adverse shocks in its latest outlook with market turbulence, oil price crash, weak commodity prices & continued geo-political conflict as key threats & risk factors.
China’s growth forecast for 2016 has been set at the lower 6.5%-7% range along with Moody’s downgrading the outlook for China from stable to negative.
Near Term Strategy Focus across OEMs remains on Optimization & Rationalization while Investing for Long-Term Growth.
The near term strategy focus of the industry OEMs remains cautious with focus on restructuring of operations aimed at rationalization & optimization of their industrial & overall cost base in-line with the prevailing, difficult market environment aimed at protecting & managing profitability amid rapidly contracting topline.
Almost all industry OEMs have deployed a slew of measures, which include, massive production cuts, prudent inventory & cost base management, workforce downsizing and consolidation as well as optimization of industrial footprint along with share repurchase programs to manage this difficult industry downswing.
Also, further industry consolidation is on the cards with near term, broader market outlook remaining grim. The, OEMs, however, continue to make significant investments towards technological development & R&D activity; as evinced by their steady R&D expenditure levels; aimed at enhancing their competitive positioning from a long-term perspective.
Strong, Long-Term Fundamentals & Growth Drivers despite Significant, Near Term Pressures & Challenges
The long-term industry fundamentals & growth drivers, however, remain strong and robust with significant role played by the industry in economic growth and significant investments likely to be made by emerging nations towards infrastructure development over medium term to support economic growth and with rapid urbanization trend.
Amongst traditional markets, the U.S. market is likely to spearhead market direction going forward & will hold the key to shaping the near to medium term global market outlook. Additionally, massive investments are going to be required in the U.S. towards infrastructure rebuilding & repair over medium term.
The advent of a long term transportation bill, after over a decade, with the passing of the FAST Act in December 2015 provides over $300 billion in federal funding towards transportation projects in the U.S. through 2020 which is likely to give a significant boost to the industry in the U.S. Additionally, Fed’s monetary policy stance in 2016 & the outcome of the U.S. presidential elections will be significant for the industry over near term.
In Europe, the economy entered deflation in February with lower crude oil prices and witnessed slowing down of manufacturing activity amid fears of sluggish growth in 2016 which is likely to lead to quantitative easing by the ECB over near term.
China’s growth forecast for 2016 has been set at the lower 6.5%-7% range along with Moody’s downgrading the outlook for China from stable to negative. The country has already been focusing on rolling out stimulus measures to boost economic growth amid massive planned layoffs in the steel & coal sectors.
The effectiveness of stimulus measures & overall policy focus in China over near term, thus, are likely to be decisive for the economic activity and the construction equipment market.