But sales could bounce back in the latter stages of this year, driven by more favourable economic conditions and sound levels of demand.

That鈥檚 according to Off-Highway Research鈥檚 managing director Chris Sleight, speaking to Construction Briefing.

鈥淢ost markets around the world fell last year, apart from India, and some of them fell quite steeply,鈥� Sleight says.

鈥淭here was a big bulge of sales during the pandemic, driven by low interest rates and various stimulus measures. That came to an end and at the same time, interest rates were high last year. We feel they stayed too high for too long and that has impacted housebuilding in Europe in particular,鈥� Sleight says.

Difficult conditions in the housebuilding sector have resulted in reduced sales of construction equipment, especially compact machines.

The fact that compact machines sales took a hit was part of the reason why the drop in sales in 2024 looks as steep as it does, Sleight explains.

鈥淏ecause we tend to look at the market in unit terms, when the small equipment types are affected, it does look like quite a sharp downturn,鈥� he says. 鈥淪maller machines are sold in greater numbers so there is a pyramid effect.鈥�

Better times on the horizon?

The good news, however, is that although central banks in some parts of the world have been slower to reduce interest rates than expected, they are set to continue on a downward trajectory this year.

The European Central Bank cut its key interest rate by 0.25 percentage points in December 2024, taking it down to 3% and has left the door open to further cuts this year amid continued sluggish economic growth in the region, for example.

In the US, the Fed also cut rates by a quarter point in December. Fed officials expect to cut rates by another half a point in 2025, although that is not as dramatic as the full percentage point cut they forecast in their September 2024 predictions. Nonetheless, the target federal-funds rate could end the year at 3.75%-4%, according to reports.

* - Forecast ** - Rest of the World includes South America up to & including 2020. South America stated separately from 2021 (Chart courtesy of Off-Highway Research)

The Bank of England has been cautious, holding rates at 4.75% in December. The jury is currently out on how many rate cuts 鈥� if any 鈥� it will make in 2025.

Meanwhile, China鈥檚 central bank signalled this month that it will cut interest rates at the 鈥減roper time鈥�. The Financial Times has separately reported that rates could be cut from the current level of 1.5% at some point this year.

鈥淎s 2025 progresses, you would expect interest rates to continue coming down, which should get housebuilding going again. Another important thing about interest rates is that most equipment purchases are financed rather than bought using cash flow. So to some extent the interest rate dictates how much it costs to buy a machine,鈥� Sleight says.

That鈥檚 not to say that rates at their current level are unaffordable. Rather, because there is an expectation for more cuts to come, fleet owners are prepared to let machines age a little further before they dip back into the market for new machines.

鈥淲e would expect a general global upturn certainly by the second half of the year,鈥� Sleight contends. 鈥淲hat often happens is it goes from sleepy to high demand very quickly. People are caught napping - the customers want it yesterday, and as a result lead times start to stretch out.鈥�

Volumes still high but trending higher

Despite the sharp fall in unit sales in 2024, they remained at a high level as compared to previous years.

In fact, last year could end up being the fourth highest on record in terms of global volumes, Sleight says.

鈥淚t is by no means a disaster. It鈥檚 not like we鈥檙e back in 2009 kind of territory. Anything that鈥檚 down 10% is bad news but objectively the market is still fairly strong.鈥�

While the market is cyclical, the long-term growth trend is about 3% per year.

And provided housebuilding recovers in the different mature markets around the world where it is currently struggling, Sleight expects a strong level of demand in 2025 for compact machines.

In Europe, that鈥檚 likely to take the form of mini excavators, telehandlers, and small crawler and wheeled excavators. In North America, telehandlers should also prove popular, along with the ubiquitous compact tracked loaders and compact excavators.

In more infrastructure-driven emerging markets, it鈥檚 larger machines that are likely to be driving demand, to some extent because many are mining economies. So long as commodity prices hold up, so will the demand for larger machines like excavators, wheel loaders and dump trucks, says Sleight.

Chinese OEMs look to export markets

For Chinese construction equipment manufacturers, bust has followed a stimulus-induced boom in 2020 and 2021. Combined with a collapse in the country鈥檚 real estate market, which was a major driver for equipment demand, OEMs have suffered a double whammy. And it has driven them to focus more on exports.

鈥淚t has been a matter of survival to some extent. But those big manufacturers have always had ambitions to be global powers,鈥� says Sleight.

Chinese manufacturers have been expanding quickly and aggressively into a number of emerging markets, particularly in South East Asia.

Whereas Chinese machines would once have been in the second or third tier, machines from the Middle Kingdom are now taking the lead, Sleight explains.

鈥淭he types of products that they鈥檙e doing very well with are the ones that are made in the highest volumes in China. It tends to be crawler excavators, mobile cranes (which are not really a high-volume product, but there are a lot of them made in China), wheel loaders, and wide-body trucks that are replacing traditional dump trucks of up to about a hundred tons.鈥�

More difficult for Chinese OEMs are regions like Europe and North America, where customers don鈥檛 necessarily buy on lowest price and the incumbent OEMs have large and well-established distribution networks, he adds.

Overall, the picture for 2025 looks like it could be rosier for manufacturers around the world in terms of equipment sales, Sleight concludes.

鈥淭he fundamentals for construction equipment are good. There are housing shortages throughout Europe and North America and there鈥檚 a need for infrastructure. Everything is in place - it just needs that impetus for the uptick to begin.鈥�