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This article was written collaboratively by the global leaders of the McKinsey Engineering, Construction and Building Materials Practice, a group that spans different regions and segments and includes Jonas Biörck, Jose Luis Blanco, Jan Mischke, Maria João Ribeirinho, David Rockhill, Erik Sjödin, and Gernot Strube.
COVID-19 has affected communities globally, with more than 2.5 million reported cases as of April 30—a number that is still rising. And while governments and companies globally are responding fast, much remains to be done.
In this difficult time, construction matters more than ever. From building hospitals in just a few days to donating lifesaving equipment, the industry has played a critical role in responding to the crisis and in the recovery. The industry represents 13 percent of global GDP, and unlocking currently constrained labor availability could help drive recovery while addressing our most pressing construction-related needs.
But the industry has also suffered: construction sites in many countries have shut down. And most sites that are open have faced disrupted supply chains and operational restrictions. Such disruption has been reflected in financial indexes: since February, public engineering, construction, and building materials (ECB) companies have dropped significantly more than average (Exhibit 1).
Companies that came out ahead after the financial crisis of 2008 typically moved fast and hard on productivity (including cost reduction), rapidly reallocated resources, and made bold moves (including early divestitures and acquisitions in recovery) to prepare for the future. Leaders also invested heavily in digital technologies, differentiated their portfolios and offerings, and cleaned up their balance sheets (Exhibit 2).
Organizations must think through the moves they can make today to come out ahead later. A fast return to business as usual seems unlikely for the industry: leaders must first define and prepare for what the construction industry will look like after the crisis. Seven actions can help them anticipate and adapt to the next normal.
COVID-19’s effects on supply, demand, and industry dynamics
Beyond the short-term impact of an economic downturn on construction demand, the crisis is also expected to hit long-term supply and demand, resulting in lasting shifts in investment patterns. Although a high level of economic uncertainty persists, research from the McKinsey Global Institute suggests that economic activity could be back on track by early 2021—if the virus is contained within the next few months and the right economic policies are enacted. However, longer-term lockdowns or other severe restrictions, even intermittent ones, could result in a severe and sustained economic downturn, with economic activity returning to 2019 levels by 2023 at the earliest.
