E
quipment manufacturers around the worldwill be gladwhen the
industry gets back to normal. As this year’s YellowTable (News
Report, p. 13) illustrates, the industry’s 50 largest manufacturers
saw their revenues fall -2.6% last year, as low commodityprices andweak
emerging economies took their toll on global demand for construction
machinery.
But looking back over the 13 years of the Yellow Table raises the
question, what is normal?
The boom period from 2002 to 2009 was not normal. It saw
unsustainably high growth driven in part by cheap credit around the
world, and in part by the emergence of China – and to a lesser extent,
Brazil, India andRussia– as significant construction equipmentmarkets.
Then of course came the steep downturn in 2009whichwas triggered
by the collapse of Lehman Bros in 2008. Again, this was not a ‘normal’
recession. It was much more sudden and severe than anything seen in
the industry for generations. Although the gift of hindsight tells us itwas
brewing in the slack lending environment of the preceding boom years,
it still came as a huge and nasty surprise to the world.
In the aftermath of the crisis, central banks and governments around
the world took a range of unconventional steps to shore-up the world
economy. Interest rates were dropped to zero, or near enough inmany
parts of the world, huge stimulus spending packages were unveiled, and
policies such as quantitative easing (QE) – effectively printing money
and using it to buy assets –were launched.
In terms of the construction equipment market, this saw global
revenues shoot to an all-time high of US$ 186 billion in 2012, and this
was prettymuch all due to the boom inChina, which came on the back
of the government’sUS$585billion stimulus spendingplan.One of the
main fruits of this is China’s high-speed rail network.
But since 2012 the construction equipment industry has fallen into a
seconddip. First itwas about the inevitablebust after theChineseboom,
now it is a more widespread issue reflecting subdued economic growth
inmany emerging economies,which is intertwinedwith low commodity
prices and aweak global mining industry.
And returning to my question of, what is normal? I would say, not
this. Demand for construction equipment around the world is clearly
still adjusting to the rollercoaster ride of the last six or seven years, and
economic policies still reflect the siegementality of the crisis years.
Interest ratesmay start to go back up tomore realistic long-term levels
in the US and UK this year, but elsewhere in the world there is still a
need to prop up economic growth with unconventional measures. The
European Central Bank only started its QE programme this January.
Better late than never, but it also illustrates that we’re not out of the
woods yet.
My expectation is that globalmarketswill improve this year, and in the
subsequent years, and that lifewill become a littlemore conventional and
predictable. But I don’t knowwhat ‘normal’ will look like in the global
equipment industry.Maybe there’s no such thing.
Chris Sleight
Editor
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