2013-02-27 03:07:03 - Recently published research from Business Monitor International, "Brazil Infrastructure Report Q2 2013", is now available at Fast Market Research
BMI View: Our core view is for Brazilian construction sector growth to peak in 2013 and 2014, at 5.7% and 5.9% year-on-year respectively. Beyond 2015, we expect growth to revert to below-trend and below potential for the remainder of our forecast period, averaging just 4.6% between 2015 and 2022.
Brazil's construction sector is expected to post the strongest growth over our 10-year forecast period in the near term, with growth expected to peak in 2013 and 2014, following two years of below-trend weak growth (2011/12). However, we believe this rebound in growth is only temporary, and from 2015 until the end of our forecast period in 2022, expect growth to return to below trend rates as momentum dissipates behind public sector
spending and private investors remain elusive.
Growth will peak in the near term owing to a number of reasons:
* Residential construction should rebound: Despite continued growth in the housing market over 2012, with house prices and mortgage applications reporting strong expansion, the construction of new residential properties stagnated. Housing starts fell by 29% in the first 10 months of 2012 compared to the same period in 2011. This trend should reverse from mid 2013, as homebuilders rebuild their balance sheets, improving cash flow, allowing them to once again increase new launches.
* Events align to boost infrastructure growth: The coinciding of the final year of the BRL959bn PAC II investment package and the presidential elections in 2014 should work to boost infrastructure industry value. The same interlinking of events precipitated an 11.7% rise in construction sector growth in 2010, as PAC I projects were pushed through to meet the deadline and pre-election spending took hold. Whilst base effects were more notable (following the deep contraction in industry value growth in 2009), growth has also been weak over the past two years, adding further support to our view for a rebound.
* World Cup projects: Slow implementation of World Cup projects to date will necessitate a last minute boost in construction. As of July 2012, only 5% of projects related to the tournament were completed. Whilst we think it unlikely that all projects will be finished on time, we are still pricing in a last minute rush to complete necessary projects ahead of the tournament.
* Financing remains present: The government will continue to extend financing to allow necessary infrastructure projects (social and economic) to be realised. BNDES has extended its emergency credit line, and has pledged to expand funding over the short term. The development bank plays a crucial role in providing low cost, long term financing for infrastructure projects. At the same time, the FGTS (Brazil's severance pay fund) has committed to providing US$115bn in financing for social and economic infrastructure projects, the majority for Minha Casa, Minha Vida projects.
Full Report Details at
- www.fastmr.com/prod/541157_brazil_infrastructure_report_q2_2013. ..
These factors will all allow Brazil to experience a short term boost in construction industry growth. However, over the longer term, momentum will dissipate. Brazil cannot sustain the level of private sector investment beyond 2014, and politically it will become less plausible. Rousseff already announced a number of measures over the second half of 2012, to shift the burden of financing infrastructure onto the private sector.
However, in addition to changing regulations to allow private investors, improvements in the business environment will be necessary to attract investors. Improving tendering, institutional efficiencies, permitting, especially environmental, tax, legal and HR structures and access to financing and capital movement will be essential in transforming Brazil's infrastructure sector into one that relies in greater portion on the private sector. We have seen little movement on this side of the equation, indeed, in a poorly timed move; Rousseff has actually decreased confidence in the government's ability to provide a stable environment by adjusting the electricity tariff structure. Consequently, we do not expect investment from the private sector to live up to potential, and further, expect the biggest beneficiaries to be the Brazil domestic companies who are comfortable operating in the country's business environment.
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