Industrial Info Assesses COVID-19 Impact on Global Project Spending

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The COVID-19 pandemic will trigger a "forced global recession" in the second quarter, as most nations have enacted stay-at-home orders, and industrial project spending is expected to be impacted for the remaining part of 2020 and into 2021, Michael Bergen, Industrial Info's executive vice president, told about 1,000 listeners on a webcast April 3.

"We still have not seen the full impact of COVID-19, and it is more than likely that the U.S. economy will be in a recession for 2020," Bergen said.

The webinar is available for replay at this link.

Economists typically define a recession as two consecutive quarters of declining gross domestic product (GDP). The U.S. economy grew in the fourth quarter of 2019, but along with the economies of nearly all other nations, likely will contract for the just-completed first quarter, and dramatically for the second quarter as the COVID-19 pandemic strangles economic life around the world. The U.S. is scheduled to report on first-quarter GDP later this month.

Looking to 2021, "I believe we'll see more industrial plant capital spending fallout occur similar to the recovery period we had in 2010," he continued. "That's not to say that the economy will still be in a recession during 2021; it's more so to say that project spending will be lighter during the first year of an economic recovery. We do know the longest U.S. economic expansion in history has ended."

IIR's Project Spending Index, which measures the realization rate and fallout rate of industrial project activity, provides a forward-looking indicator for the health of the industry.

"This year, we started with over $700 billion in projects scheduled for construction in 2020," Bergen said. "Of this, $170 billion has already reached and surpassed the funding stages. This lessens the impact in 2020."

He continued: "Everything in 2021 ($620 billion now) is in the planning phase and subject for re-evaluation. Budgets will be tight next year as companies recover from the 2020 economic blow. Therefore, I believe there will be fewer large projects moving forward and more, smaller capital-expenditure projects executed during 2021."

"Over the last few years, we've witnessed billion-dollar projects being executed during a healthy, shale-driven economy. Next year it will be different."

For 2020, North American industrial project fallout could reach about 40%, which would be higher than in the Great Recession of 2008-09, Bergen said. IIR's Spending Gap Index, which measures project fallout is the difference between the dollar value of projects scheduled to begin construction in a given year and the actual value of projects that begin construction that year. At the start of 2020, Industrial Info was tracking about $714 billion of projects that were scheduled to begin this year. This month, that amount has fallen to about $478 billion. All told for 2020, Bergen said he expects about $287 billion of projects will actually begin turning dirt.

Globally, Industrial Info was tracking about $3.2 trillion of projects scheduled to begin in 2020. But now, Industrial Info estimates that only about $858 billion of those projects will in fact begin this year. "We think that number could fall further," Bergen said.

Click on the image at right to see Industrial Info's global project fallout data from 2015-2019 and an estimate for 2020.

Bergen added that Industrial Info's researchers around the world are updating more than 100,000 major industrial projects across geographic boundaries and industries that are either under construction or scheduled to begin construction this year. Industrial Info will be holding a series of COVID-19 webinars this spring, about every other week, with each focused on a specific industry, to provide up-to-date estimates of project spending.

The long-term outlook for industrial project spending remains intact for now, but the immediate impact features significant demand destruction, he told webinar listeners. Industrial Info is in the process of updating its medium-term outlook, he added.

Emeka Akpunonu, Industrial Info's director of North American Analytics, reminded webcast attendees that about 9.9 million people have filed first-time claims for unemployment over the last two weeks, far surpassing anything in U.S. history. "And we think we are not yet at the peak of the (COVID-19) disruption. No one really knows how long this will last nor what it will take to recover."

Based on year-to-date project fallout in North America, Akpunonu said Oil & Gas Production and Pipelines, as well as Metals & Minerals and Industrial Manufacturing, appeared to be the most challenged sectors. Oil & Gas Production has been hit by the double whammy of demand destruction stemming from the COVID-19 pandemic and a crude oil price war that cut West Texas Intermediate (WTI) prices by an estimated 66% during the first quarter.

Industrial Info is more optimistic about the level of North American project fallout for the Oil & Gas Terminals, Pulp, Paper & Wood, Food & Beverage, and Pharmaceutical & Biotech industries, he added. Industries with a moderate level of concern over project fallout include Electric Power, Chemical Processing, Petroleum Refining and Alternative Fuels.

Industrial Info has built a model projecting worldwide pre- and post-COVID-19 project spending. As of April 2, Akpunonu said, the best-case scenario has 2020 plant capital and maintenance spending forecasted to be between $2.4 trillion and $2.6 trillion, a decrease of between 2.6% to 9.2% The middle scenario projects 2020 spending to fall to between $1.9 trillion and $2.3 trillion, or a decrease of between 15% to 28.3%. The worst-case scenario envisions project spending to decline to between $1.3 trillion and $1.7 trillion, dropping by 35.5% to 50.7%.

"It looks like we're going to have a rough ride in the second quarter," Akpunonu said. "Things are still unfolding, and markets and governments are still responding to COVID-19."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook-Twitter-LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.