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Wed September 22 2021

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Arcadis warns on supply chain fragility

15 Apr 20 Construction industry economists at surveyors Arcadis are predicting that it will be at least 2022, if not 2023, before house-building and commercial development in the UK return to growth.

Forecasts are within Arcadis’ latest quarterly report, Spring Market View: Into the Unknown
Forecasts are within Arcadis’ latest quarterly report, Spring Market View: Into the Unknown

Much depends on supply chain resilience, Arcadis says. Difficulties sourcing materials, equipment and labour could all prove obstacles to a return to growth.

The latest quarterly tender price forecasts from Arcadis are informed by the expected economic impact of the Covid-19 pandemic, with much of the world on the brink of what is widely expected to be an unprecedented economic downturn.

In the midst of all this, Arcadis’ latest report, Spring Market View: Into the Unknown, has downgraded the firm’s tender price forecast for the year 2020 to 0%, with inflationary and deflationary pressures cancelling each other out.

It is going to take public sector investment on projects like HS2 to drive the economy back to safety – that is the view now – as many private sector markets will take a couple of years, at least, to recover.

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The Covid-19 crisis is different to previous economic crises, Arcadis says, in that it has most deeply affected consumer-facing industries like hospitality, which should eventually bounce-back. But past recessions indicate that construction activity responds more rapidly and tends to overshoot shocks in the wider economy, so the effects for the construction sector could last longer.

Despite this, Arcadis believes that once social distancing restrictions are lifted, work on all construction sites could theoretically start quite quickly, providing that problems around sourcing labour and materials can be overcome as the market restarts. However, as the exit strategy from lockdown has not yet been defined, and the full impact on demand is yet to be assessed,  its forecast is subject to much uncertainty, it admits.

The resilience of supply chains will continue to be one of the major risks as the industry moves back to recovery. In its report, Arcadis has emphasised that the industry will need to look ahead to business recovery and act now to secure ongoing supply. It has produced an eight-point plan for construction and other businesses to recover quickly and build resilience to risk.

Arcadis head of strategic research Simon Rawlinson said: “Plotting the potential course of this crisis is not easy. Our forecast is based on a realistic but positive scenario, but there are of course many potential outcomes. The outlook  assumes that the economy will keep going into 2021, the construction pipeline will be sustained, and the supply chain will hold its nerve. Regrettably, if the market does fall away, there will be very few clients who are able to benefit from any downturn, so it is vital that – even in the midst of the crisis – we look at how the industry can implement resiliency measures that will put it on the best possible footing for recovery.”

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