Anil Taneja
Consider the following aspects of macro-economic and political reality in the world as of September 2022:
1. A world recently emerging from a once in a life time black swan event such as the pandemic, with many countries fiscal position deeply compromised, and logistical problems still not sorted out, creating all kinds of distortions.
2.An ongoing war in Europe that is now having all kinds of negative economic effects in other countries in other continents as well.
3. Rising inflation and rising interest rates in most countries leading to a slowdown in economic activity, as consumption power is reduced, and belts are tightened.
4. A severe energy shock, faced especially by West and East European countries, apart from sky high energy prices. With winter approaching, what looks probable is a very sharp shrinking of economic activity leading to possibly a severe recession.
5. Even in the United States, where, just a couple of months ago, the biggest problem for natural stone importers was uncertainty of supply apart from unbelievably high shipping costs, and having enough inventory to meet demand, the demand cycle has sharply reversed, and a new cautiousness has suddenly become the overriding sentiment.
6. After 3 decades of unprecedented economic growth in China, the real estate market has now run into serious problems of oversupply of homes, and builders have serious financial problems, leading to unfinished homes.
One could go on and on...
In these critical moments it is easy to get depressed when looking at the negative news around us from an economic point of view, and be tempted to think the world is coming to an end, but it might also be useful to consider the following-
1. The winter in the northern hemisphere will end in a few months time, as it always does. Once spring arrives, economic activity revives too.
2. Even if there is a slowdown in the important US market, this slowdown will almost certainly be shortlived. Unlike the housing crisis of 2008-2009, when demand for homes had a strong element of speculation and dodgy finances, this time, there is, even now, a severe shortage of homes in USA, estimated to number around 1 million. The problem has been underbuilding, not overbuilding. Slowing demand is due to unaffordability, because of the sharp rise of housing prices during last 2 years, and now the rising mortgages. However, prices for homes have also started to decline in many parts of the country in the last few weeks. It is surely a matter of time when construction activity, and, therefore, demand for building materials, will also rise once again. Unlike the crisis of 2008-2009, which took around 8 years before construction activity picked up again, this time, most likely, the slowdown should be shortlived.
3. Europe looks to be in bigger trouble than USA. But much of the rapid slowdown is due to the energy crisis as a result of the war and the cut off in gas supplies by Russia. Obviously an end to the war will dramatically change the prospects, but who can predict when the war will be over? Assuming the war does comes to an end in next few months (a big IF), the new East and Central European countries of the European Union should return to fast growth of previous years. In other countries, which are essentially mature markets, renovation and rehabilitation work is an ongoing work, and the emphasis on building a green economy by the European Union with billions of euros already alloted for this purpose, means there will be a lot to destroy and rebuild for many years in the future. Making cities more green also means, among other aspects, redesigning cities, building parks, more public squares, creating new demand for landscaping, for example. an area where natural stone usually comes out winning. Moreover, post-pandemic, in an age of home working, homeowners everywhere will continue to look for bigger houses or remodel the ones they live in, or move to warmer places- another trend that will last for a long time, perhaps decades.
4. The Chinese market as we have known during the last 3 decades, no longer exists. That explosive ecomomic growth rate with emphasis on construction, has come to an end. Yes, the housing market is in serious trouble, with tens of millions of homes unsold, and it could take several years for the different problems related to the slowdown to be sorted out. The local stone industry, too, has become smaller as hundreds of factories have closed down. More companies could close in the future. But one bright spot is the commercial sector, that segment is actually doing reasonably well.
5. The world of natural stone, in terms of major markets, is more than just USA, Europe, and China. The construction industry in India is finally picking up again after a slowdown cycle that started in 2011- 2012. Demand for natural stone is rising all over the country, from north to south, and is no longer restricted to the big cities, but has also spread to the rural areas. Even now, with all the problems holding back the world economy, India continues to grow at a fast pace.
6. Since 2014, when the oíl prices went down, the energy rich Gulf countries were in a slump as far as construction is concerned. Excess of homes, hotels, offices, etc.was the dominating feature. With huge amount of money pouring in due to high oíl prices, the Governments are back at announcing ambitious plans which involve a lot of construction (and, hopefully, demand for natural stone).
7. Many other developing countries are doing well. Indonesia, for example, a country of 260 million people is growing at around 5%. The local market in Brazil has held up well. Mexican market shows signs of life again. And so on....
CONCLUSION
Barring the unknown and unquantifiable effects of an ongoing war, it is important to remember that most of the current problems are actually of a short term nature. The efforts to control high inflation with rising interest rates may bring about an economic recession, but it is likely to be short lived. What is important to remember is that the forces of underlying demand, the economic development that is creating hundreds of millions of new consumers, continue to to be unabated. In the developed world, the new and urgent emphasis on green cities and a more sustainable world, means there will always be a place for a green material like natural stone. The real demand for homes in USA continues to exist, the main element is still top few homes are being built. Movements of people within countries (the population of Madrid, for example, grows by 80000 people every year) means that even if there is slack in some places, there can be more dynamism in other parts of the same country.
It is a complex, uncertain, maddening world. But it is not coming to an end. The natural stone industry has always been with us, in some way or another. It faces different kinds of problems nowadays, in the area of extraction, from new competitors, etc. But the dark clouds of today will go away.
