Growth Expected for Agricultural, Construction in 2017

Agricultural and Construction segments could see a modest recovery in 2017 with Ag growing by about 2% and Construction climbing 3.4%.

AGRICULTURAL production worldwide suffered a severe slump in 2014 and 2015, and the recovery in 2016 was not near the earlier projected levels. We believe the overall market reached its bottom in 2015- 2016, especially for lower HP equipment, which has seen some double-digit growth in sales in 2016 vs 2015.

However, higher HP equipment continued to decline during 2016, and the bottom was most likely reached in H2 2016. We expect growth for 2017 in this category to show a flat to a small increase in activities. The global agricultural sector is expected to gain 2% in 2017.

We do not expect any rapid recovery or high growth until H2 2017, mainly due to current global economic conditions and record low commodity prices. We forecast the recovery will be very slow and the market will not reach its prior levels in the foreseeable future.

CONSTRUCTION. The global construction sector is expected to gain 3.4% in 2017. Some equipment seems to be slowly gaining ground in Europe and is showing a healthy demand recently from domestic markets in North America, especially for smaller equipment.

China and Brazil are experiencing significant challenges. At the same time, the economy in North America is approaching its peak, and that will have a direct impact on production schedules for 2018. A lot will depend on the progress made by the Trump Administration regarding tax reform and the 2018 budget proposal.

The bright spots in Construction have been mining and oil and gas equipment. These industries have suffered double digit declines globally, but recent gains in commodity prices certainly helped the segment, especially the higher HP equipment. Based on the most recent developments over the past 6-8 months, the mining sector is looking very promising.

Optimism was widely seen at the March ConExpo trade show in Las Vegas. Additionally, a broadly speculated increase in infrastructure spending in the U.S. could drive this sector higher.

In terms of the overall economic cycle, we expect most developed markets to be flat in 2017-2018 and then the new cycle will start in the following years. We will see North American markets leading this trend and European economies will follow the trend somewhat later, as they just started to gain ground and entered the up-trend.

However, due to the Brexit and the future negotiations and developments between UK-EU, as well as new policies of the Trump Administration, most investors will assume a "wait and see" position and most likely will postpone any major investments in the near future.

China, Brazil and Russia have experienced significant declines in production trends and reached the bottom in 2015 - 2017; they will start a very gradual and slow recovery in 2017-2018. There might be some minor regional differences and timing of the cycle, especially for Brazil, which was in deep recession in 2015-2016 and now is seeing slow growth possible for 2017. We will continue to monitor the cyclical trend and will make updates to it, as necessary. PSR