How Economic Booms Affects Cost of Construction Supplies in the Philippines
The Philippine construction industry is experiencing dynamic growth, fueled by economic expansion, ambitious government initiatives, and increasing urbanization. This boom presents both opportunities and challenges, particularly concerning the fluctuating costs of construction materials. This article delves into the relationship between economic growth and construction supplies in the Philippines, examining current trends, contributing factors, and strategies for managing these fluctuations.
The Philippine Construction Sector: An Overview
Current Expansion and Projections
The Philippine building sector is increasing rapidly. The sector is anticipated to grow 10.7% in 2024, according to experts. This increase is underpinned by spending on infrastructure and energy projects. In the future, the sector is anticipated to increase at an average annual growth rate of 7.1% from 2025 through 2028. The country’s construction output will hit PHP 2.58 trillion in 2028, showing massive growth potential.
The Philippine Statistics Authority (PSA) recorded a 9% year-on-year growth in the value-add of the construction industry in Q3 2024, after registering robust growth in the earlier quarters. The Bangko Sentral ng Pilipinas (BSP) reported a 13.4% year-on-year growth in the average outstanding loans for construction for the first eight months of 2024, reflecting robust financial support for the sector.
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Key Drivers of Construction Activity
The construction industry in the Philippines is growing because of various reasons. One key reason is government expenditure on infrastructure. There is a need for more housing, office space, and factory buildings because of urbanization and population growth. Also, eco-friendly building practices are gaining popularity.
Preparations for the May 2025 midterm elections are also accelerating construction activity. Infrastructure projects are often expedited before the election ban is enforced. Banks are lending more money to developers and construction companies. This shows they are confident in the industry’s growth. Key sectors driving construction demand include logistics, healthcare, and tourism. The need for logistics facilities has increased with the rise of e-commerce. There’s also a shortage of hospital beds, and renewed activity in the hospitality sector as tourism rebounds.
Economic Booms and Material Price Fluctuations
The Relationship Explained
Economic booms and increased construction activity are closely linked. As the economy expands, there is greater demand for new buildings, infrastructure, and renovations. This increased demand puts pressure on the supply of construction materials.
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Simply put, when there’s more demand than available materials, prices go up. This can impact project budgets and timelines. Supply chain issues can make these price changes even more unpredictable.
Cost of Key Materials
The prices of key construction materials such as steel, cement, aggregates, and lumber are affected by economic growth. Disruptions to transportation infrastructure caused by natural disasters can complicate the movement of materials and further increase costs.
Government Initiatives and Infrastructure Development
“Build Better More” Program
The government’s “Build Better More” program is designed to improve the country’s infrastructure. This includes roads, bridges, airports, and seaports. The program aims to boost the economy and improve transportation. However, it also affects the demand and cost of construction materials. The program aims to allocate resources to flagship projects focused on transportation, energy and housing sectors.
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Public Infrastructure Spending
Increased government spending benefits construction companies involved in these projects. However, it also increases demand for construction materials, potentially leading to higher prices. Infrastructure projects are often accelerated before election periods.
State infrastructure spending rose 2.52% in October. The government reported that five projects with a combined value of PHP28 billion are expected to be awarded by the end of 2024 or early 2025. These include upgrades to the New Bohol International Airport and the construction of a 300-bed cancer hospital in Manila
External Factors Influencing Costs
Global Market Dynamics
The Philippine construction industry is connected to the global market. Global supply and demand for construction materials affect prices in the Philippines. For example, if global demand for steel increases, prices in the Philippines can rise, even if demand here stays the same.
Inflationary Pressures
General inflation also contributes to rising construction costs. When the price of everything goes up, construction materials are no exception. Inflation affects the cost of labor and transportation, further increasing project expenses.
Challenges and Mitigation Strategies
Supply Chain Constraints
Maintaining a reliable supply of construction materials is a key challenge. To address these challenges, construction firms should improve their supply chain management by using multiple suppliers, creating partnerships, and carefully managing inventory.
Natural Disasters
The Philippines is vulnerable to natural disasters, which can disrupt construction projects and increase material costs. Damaged transportation infrastructure can delay the delivery of materials. Rebuilding efforts after a disaster also increase demand, driving up prices.
Strategies for Managing Costs
Construction companies can use several strategies to control costs. Buying materials in bulk can lower prices. Using alternative materials can also reduce expenses. Effective project management helps to minimize waste and improve efficiency. Construction firms can also leverage new technologies such as AI to forecast project risks, enhance scheduling, and optimize resource allocation. Sustainable practices such as using eco-friendly materials and implementing waste-reduction practices can also help to reduce costs and minimize environmental impact.
Key Takeaway
Economic growth significantly impacts the cost of construction supplies in the Philippines. Increased demand, global market forces, and inflation all contribute to fluctuating prices.
By adapting to these economic shifts and implementing innovative strategies, construction firms can ensure continued success in the Philippine market. The construction industry is expected to grow steadily, driven by government investment, urbanization, and a focus on sustainability.
The industry’s commitment to sustainable development requires durable and eco-friendly materials that can withstand extreme weather conditions. Companies that adopt these practices will not only reduce pollution and minimize environmental impact, but will also create more jobs and boost economic growth.
