Construction equipment manufacturers will rely on the North American market in 2016, as the U.S. economy continues to prove itself the stable cornerstone of the global economy, according to the 2016 Strategy Guide, published by Noealt Corporate Services. The report examines the strategic focus and priorities of the leading construction equipment manufacturers.
Among traditional markets, the U.S. market is likely to spearhead market direction going forward and will hold the key to shaping the near- to medium-term global market outlook. Additionally, massive investments are going to be required in U.S. infrastructure rebuilding and repair over the medium term. The advent of a long-term transportation bill, with the passing of the FAST Act in December 2015, provides more than $300 billion in federal funding toward transportation projects in the U.S. through 2020, which is likely to give a significant boost to the industry in the U.S. Additionally, the Fed's monetary policy stance in 2016 and the outcome of the U.S. presidential elections will be significant for the industry in the near term.
In Europe, the economy entered deflation in February with lower crude oil prices and a slowing down of manufacturing activity amid fears of sluggish growth in 2016, which is likely to lead to quantitative easing by the ECB (European Central Bank) in the near term. China's growth forecast for 2016 has been set at the lower 6.5-7 percent 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 and coal sectors. The effectiveness of stimulus measures and overall policy focus in China in near term, thus, are likely to be decisive for the economic activity and the construction equipment market.
The global construction equipment market, meanwhile, continues to face significant headwinds with the market having witnessed its third straight year of demand contraction in 2015 with continued economic challenges across China, Brazil and Russia impacting investments toward infrastructure development across these markets.
The Chinese growth engine, which has led the pace of the market for more than 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 more than 25 years amid continued financial markets volatility, the country strives to transition to a more consumption-driven economy with limited reliance on manufacturing and heavy industries, which has impacted the industry significantly.
The Brazil and Russian economies, on the contrary, have been impacted severely by the energy sector downturn in addition to the ongoing political crisis in Brazil. Pressures are likely to prevail across these economies over the near term. Additionally, the ongoing mining slump with continued weakness in commodity prices and the downturn in the energy sector with oversupply driven, sustained slide in crude oil prices have collectively further exacerbated and worsened the situation for the industry.
The near-term strategy focus of the industry OEMs (original-equipment manufacturers) remains cautious with a focus on restructuring of operations aimed at rationalization and optimization of their industrial and overall cost base in line with the prevailing, difficult market environment aimed at protecting and managing profitability amid rapidly contracting topline. Almost all industry OEMs have deployed a slew of measures, which include massive production cuts, prudent inventory and 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.