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Monday, June 27, 2011
BIS WARNS - CONSTRUCTION CAPACITY DESTROYED FOREVER
The Financial Times carried an interesting front page article today regarding the Annual Report of The Bank of International Settlements (BIS). http://www.bis.org Among other predictions, BIS warned that the global economy has little or no slack left for rapid non-inflationary expansion. The same report goes on to say:
The imbalances that accompanied the boom in a number of advanced economies are still with us today. In some of those countries, the financial and construction sectors grew out of proportion to the rest of the economy and may have to shrink….The existence of these imbalances also implies that an extrapolation of pre-crisis growth is neither the correct matrix by which to assess the state of the recovery nor a useful guide for policy. Some of the (physical and human) capital put in place during the boom years is less useful than originally thought. A sizeable part of investment in the construction and financial sectors probably falls into this category.
Lots of words but what does this really mean? Simply that, in the near to medium term we should not expect the construction industry to recover to pre-crisis levels and so less capacity (fewer people and firms) will be needed.
The BIS view coincides with the conclusion which I have been 'preaching' for three years but what BIS does not say is that the construction industry will have to be careful not to fall into the old trap of neglecting to hire and train recent graduates - after all, they will be the industry leaders after 2030 and without a solid pool of well trained of leaders the industry will struggle.
posted by The QS