Global Inflation and Its Impact on the Construction Industry: 2023-2025 Outlook

Following the sharp rise in global inflation throughout 2022, inflation remained above target levels in most advanced economies by mid-2023. According to the World Bank’s June 2023 Global Economic Prospects report, global inflation reached a median rate of 7.2% year-on-year by April 2023, down from the peak of 9.4% in July 2022. This reduction was largely driven by falling commodity prices, easing supply chain pressures, and moderating energy costs—factors crucial to the construction industry.

Impact on the Construction Industry

For construction, inflationary pressure on key materials such as steel, concrete, and lumber has eased since 2022, but cost volatility continues to challenge contractors. Many projects still face potential delays and higher-than-expected costs, particularly as energy and labor expenses remain elevated.

Forecast for 2024-2025

According to the IMF’s World Economic Outlook, global inflation is expected to decline further, falling to 5.8% in 2024 and 4.5% by 2025. This decline should lead to more stable pricing for construction materials, though inflation for core items like labor may decrease more slowly.

Key considerations for the construction industry:

• Material Costs: Price stabilization for essential materials could offer more predictable budgeting for construction projects.
• Labor and Operational Costs: With core inflation projected to decline more gradually, labor and operational expenses may remain higher, putting continued pressure on margins.
• Supply Chain: Ongoing improvements in global supply chains will ease the availability of materials, reducing lead times and project delays.

(MENA) Construction Outlook 2024-2025

In the MENA region, the construction industry is projected to grow by 2.2% in 2024 and 2.8% in 2025, reflecting a gradual recovery in the region. However, this growth remains sensitive to geopolitical factors and energy price volatility, especially as some countries face economic challenges due to regional instability.

Oil-exporting nations like Saudi Arabia and the UAE are expected to benefit from diversified growth strategies, with major infrastructure and urban development projects continuing to drive demand in the construction sector. Non-oil-producing countries may face slower growth, hindered by budgetary constraints and a reliance on foreign investment.

As inflation eases across the region, construction costs for materials like steel and cement are expected to stabilize, benefiting large-scale development projects. However, labor shortages and regulatory delays may still pose challenges.

Sources: IMF World Economic Outlook, 2024