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Bubble build

Is it logical to link skyscraper builds with global financial turmoil?

Gerhard Hope
Gerhard Hope

The so-called Skyscraper Index by Barclays Capital points out that the construction boom that resulted in such landmark buildings as the Chrysler and Empire State preceded the Wall Street Crash of 1929 and the Great Depression. The taller you build, the further you have to fall, it seems.

Barclays Capital therefore argues that there is a clear correlation between construction sprees and economic busts. It points to Dubai, where the triumphant completion of the Burj Khalifa, the world’s tallest building to date, occurred just before the current global financial meltdown dealt such a severe blow to the region’s construction industry.

According to such logic, Saudi Arabia is in for a torrid time in about seven years when Kingdom Tower in Jeddah is expected to be completed. Indeed, the author of the Skyscraper Index, Andrew Lawrence from Barclays Capital, has said that the index only takes into account skyscrapers that are currently under construction.

However, given the long build time for Kingdom Tower, and the current economic uncertainty and pessimism about the long-term future, one can only wonder about the economic outlook then.

For the time being, it seems that all the indicators are in the green. The International Monetary Fund has reported that Saudi’s net foreign assets peaked at $441bn at the end of 2010, and was anticipated to reach an all-time high of $535.4bn by the end of last year. The fiscal balance in 2011 was 4.1% of GDP, compared to 2.7% in 2010.

Or is Saudi setting itself up for an economic downturn, just as what happened in Dubai when Emaar Properties dreamed of building the world’s tallest building? I for one think that Barclays Capital seems to be unduly pessimistic; just because a country aims high does not mean it is guilty of hubris.

Yes, construction booms can be linked to economic declines, but surely this is the nature of both the construction industry and economic development in general? This is not to suggest that the two are dependent or even inter-linked, surely.

It seems like a peculiar version of the old ‘glass half full, or half empty’ conundrum. According to the logic of the Skyscraper Index, the trend must have begun with the Tower of Babel. And it is unlikely to end with Kingdom Tower either.

The Skyscraper Index is particularly instructive, however, in highlighting the super-heated construction industries in China and India. These massive economies are faced with huge logistical and resource issues as their populations grow exponentially, and more and more people move into cities to secure a higher quality of life.

Yes, economies like India and China have to be careful that they do not over-extend themselves, and thereby render themselves vulnerable to economic turbulence. What the Skyscraper Index seems to ignore is that, post-downturn, those super-tall buildings are still there, and are being integrated even further into their urban landscapes.

Who can imagine a Dubai without the Burj Khalifa? It has become a defining symbol of the emirate’s resilience and continued prosperity.

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Mar 21, 2020