The global construction industry is entering 2026 with cautious optimism, shaped by shifting economic forces and new investment priorities.
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After a period of uncertainty, the construction industry is starting to regain momentum. The path forward, however, isn’t without its obstacles. Ongoing weakness in China’s real estate market and persistently high interest rates in Europe and the United States (US) continue to challenge affordability and slow residential demand. But signs of recovery are emerging, and the broader outlook is cautiously optimistic.
Over the past year, economic pressures hit residential construction hard. China’s prolonged property slump and cooling investment weighed heavily on output, while high borrowing costs across Western economies stretched household budgets and limited new housing activity.1
Now, looking ahead to 2026, the outlook is cautiously optimistic.
Inflation is easing, interest rates are starting to come down, and policy-driven infrastructure investment continues to support activity in key markets. These tailwinds won’t erase all headwinds, Fiscal tightening, labor shortages, and geopolitical risks remain, but they do set the stage for modest global growth.
Current forecasts point to a 2.3 % increase in global construction output by the end of 2025, rising to 3.3 % in 2026.1 The recovery may be uneven, but opportunities are emerging in civil engineering, non-residential development, and housing initiatives across several regions.
Outlook: Americas
The US construction industry is set for solid growth as we head into 2026, driven mainly by non-residential buildings and civil engineering. Demand is shifting away from traditional commercial projects toward data centres and infrastructure linked to clean energy. This change is fueled by the rise of artificial intelligence, increased computing needs, and federal policy support.
Construction output is expected to grow by 4.4 % in 2026.1-4 Public infrastructure spending and a strong labor market are helping keep the momentum going. However, residential construction is still recovering from the impact of high interest rates in 2023 and 2024. As borrowing costs ease, housing demand should gradually pick up, though federal budget pressures may limit how much support comes from government spending.1
But several challenges could slow momentum. Rising material costs are a key concern. In 2025, tariffs on steel and aluminum raised the effective rate on construction goods to a 40-year high of 25–30 %, pushing up prices across a range of projects.2,3 Some sectors, like education and healthcare, are more affected due to greater reliance on imported materials.
Labor availability is another major pressure point. The industry is currently short an estimated 500,000 to 750,000 workers. Ongoing demographic shifts, fewer new entrants to the trade, and changes in immigration patterns could deepen the gap. If federal budget cuts lead to fewer public sector jobs, that may also reduce overall employment opportunities in the industry.2,3
In Canada, the construction sector is beginning to recover. After a slight decline in 2024, output is expected to grow by 2.3 % in 2026, supported by lower interest rates and easing inflation, which are helping to revive both housing and business investment.1
Further south, Mexico is entering a slower growth phase after a period of strong public investment. Rising payment delays and tighter financial conditions are likely to hold back activity in 2026. However, the longer-term outlook remains positive. Industrial construction tied to nearshoring is projected to grow at an average annual rate of 2.6 %, as more companies shift production closer to the US.1
Outlook: Asia Pacific
The Asia Pacific region, which accounts for 45 % of global construction output, is expected to post steady growth in 2026.
Urbanization, infrastructure development, and industrial investment remain key drivers across many markets, with varying levels of momentum depending on local policy and economic conditions.
India is expected to lead regional growth in 2026, supported by major infrastructure programs and strong demand for residential and industrial space. Large-scale rail and road developments will continue to drive civil engineering activity, while efforts to expand affordable urban housing and boost stalled residential projects will support a broader recovery across the sector.
In Southeast Asia, construction output is projected to remain stable through 2026. Major infrastructure and energy projects are underway in Indonesia, Thailand, Vietnam, and the Philippines, with steady public investment supporting activity. In Singapore, the state continues to drive demand, contributing around 55 % of total construction output - mostly through housing and transport projects.1
Australia is set for moderate growth, with construction output expected to rise by 1.7 % in 2026. Public spending on transport, healthcare, and education infrastructure will remain the main source of momentum. Residential construction will stay subdued due to high interest rates and elevated building costs, though government support programs may help ease some pressure in the short term.1
In China, the construction sector remains under strain. A weak property market, high inventories, and reduced developer spending are limiting residential growth. However, government efforts to stabilize the sector are gaining traction. In 2026, residential construction is forecast to grow by 5.3 %, supported by a policy shift toward social housing and increased public involvement. Overall output growth will remain modest at 0.8 %, with infrastructure investment helping to offset weakness in the private real estate market.1
Outlook: Europe
In Europe, construction conditions remain mixed heading into 2026, with modest growth in some markets and ongoing challenges in others.
High interest rates, tight credit conditions, and weak residential demand continue to weigh on the sector, although targeted infrastructure spending offers some support in select countries.
Across the European Union (EU), overall construction output is expected to see only a mild recovery in 2026 following a period of contraction. Residential construction remains under pressure, but civil engineering will continue to benefit from EU-backed funding, including the Next Generation EU recovery plan. However, credit risks for construction firms are expected to stay high, limiting expansion in some areas.1
In the United Kingdom, output is projected to grow by just over 2 % in 2026. This follows a weak performance in 2024 and early 2025, driven by high interest rates, labor shortages, and poor payment practices. While the forecast signals a return to growth, risks remain, particularly around financing conditions and workforce availability.1
The Netherlands is likely to see a modest rebound, with construction output expected to grow by 1.4 % in 2026 after a slowdown in 2024. Growth will be supported mainly by housing demand, although tight labr markets and high input costs could limit the pace of recovery.1
In Italy, the construction sector is set to cool further in 2026 after three years of strong growth. Civil engineering will continue to receive support from EU infrastructure funds, but residential activity is expected to remain weak due to the expiry of fiscal incentives and elevated borrowing costs. Late payments and financial risks tied to public contracts may also affect progress.1
Germany, Europe’s largest construction market, faces ongoing difficulties. After a sharp contraction in 2024, output was expected to remain flat in 2025 and is not anticipated to improve much as we move into 2026. Residential construction is likely to stay stagnant, while infrastructure projects may see only modest gains. High insolvency rates and delayed project starts are expected to continue weighing on the sector.1
In France, construction is slowly stabilizing. The market contracted in 2024 and saw limited improvement in 2025, but a mild recovery is projected in 2026, with output expected to grow by 1.3 %. However, weak private investment and subdued market sentiment may limit the pace of recovery, and construction-related investment is still trending downward.1
Conclusion
Heading into 2026, the global construction industry finds itself in a delicate but promising position. After several years of economic shocks and uneven recovery, the focus is shifting toward long-term investment, infrastructure resilience, and new types of demand, especially around energy, technology, and urban housing.
The growth won’t be dramatic, and not every market will move at the same pace. But underlying drivers like public infrastructure spending, digital expansion, and regional supply chain shifts are beginning to reshape the sector in more lasting ways.
For companies, workers, and policymakers, 2026 will be a year to adapt - not just to interest rate shifts or policy changes, but to a more dynamic construction landscape where flexibility, technology, and sustainability will play a larger role.
References and Further Reading
- Construction Industry Outlook 2025/2026 [Online] Available at https://atradius.in/dam/jcr:1c02f211-f3fe-4b4d-86bc-885ca077cce3/Atradius-Construction-Outlook-2025-2026.pdf
- July 2025 Consensus Construction Forecast [Online] Available at https://www.aia.org/resource-center/july-2025-consensus-construction-forecast
- 2026 Engineering and Construction Industry Outlook [Online] Available at https://www.deloitte.com/us/en/insights/industry/engineering-and-construction/engineering-and-construction-industry-outlook.html
- Softness in Construction Spending Predicted Through 2026, Consensus Construction Forecast Reports [Online] Available at https://www.aia.org/about-aia/press/softness-construction-spending-predicted-through-2026-consensus-construction
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