Posted on 5th October 2022

How Has Forex Impacted the Construction Industry?

In many ways, the forex market and global construction industry represent two behemoths on the commercial world.

More specifically, the construction industry is worth approximately $7.5 trillion on a global scale, whereas some $6.6 trillion is traded worldwide through the forex market every single day.

Interestingly, there are also a number of areas in which these two markets overlap, with forex and currency fluctuations impacting directly on the construction sector at different times. We’ll explore this in more detail in the article below.

The Cost of Importing and Exporting Materials

On a fundamental level, it should be noted that the cost of importing and exporting construction materials like metal and timber from different parts of the world is dependent on real-time and free floating exchange rates.

While a select few emerging market currencies remain pegged to the value of the US dollar or the Euro, all major and minor pairings are subject to a free-floating exchange rate that’s dictated by macroeconomic factors and the simple principle of supply and demand.

Such rates change on a daily and even hourly basis, impact the value of one currency against another and changing the cost of cross-border imports. While this creates an opportunity to profit through forex spread betting, it’s far from ideal for businesses that rely on a stable exchange rate when sourcing materials from overseas.

If we take the recent crash of the pound, for example, this has seen the GBP depreciate in value against a raft of major currencies and sent the cost of importing materials spiralling.

How Else Do Forex Fluctuations Impact the Construction Sector?

In instances where the cost of imported materials rises too high, we begin to see scenarios where commercial projects may run into budgetary issues.

This threat is even more pronounced in the current climate, with inflationary pressures present across the globe and driving prices up directly.

So, macroeconomic shifts such as rising inflation and interest rates can impact directly on currencies and the forex market, undermining construction budgets and potentially causing indefinite delays to projects.

This, in turn, may cause temporary hikes in unemployment and wider economic loss, especially when you consider the relative value of the construction sector and its strategic importance in developing nations.

The Physical Impact of Geopolitical Conflicts

The value of currency and nature of exchange rates may also be impacted by geopolitical conflicts, which may devalue national currencies and physically prevent the sourcing or importing of required materials.

This has a corporeal impact on construction projects, as the combination of higher priced materials and a shortage of supplies will cause schemes to run into even more pronounced issues over time.

The Russian invasion of Ukraine has highlighted this issue in real-time, with the cost of oil and other commodities soaring since February and impact on a raft of sectors across the board.