17
may 2014
international
construction
ECONOMICOUTLOOK
Long-term potential
>
Long-term potential
Major opportunities exist across Latin America, particularly formuch-needed infrastructure
construction.
Scott Hazelton
reports.
T
he outlook for Latin America is one of
cautious optimism, with most economies
expected to accelerate from their 2013
performances.This will be driven by a favourable
global environment in which the US economy is
forecast to grow above +3% in2015.
Brazil, Mexico, Colombia, Peru, and Chile
enjoy sound macroeconomic fundamentals,
thanks to effective monetary management that
has achieved low inflation. This is accompanied
by flexible exchange rates acting as a buffer from
external shocks.
Many Latin American countries also have
good debt metrics and sizeable foreign exchange
reserves that again shield them from external
shocks and sudden capital outflows.
But the forecast is cautious because downside
risks also exist, and are related to the need for
structural reforms. Commodity prices and
external demand no longer mask the corruption
and red tape that discourage investment in Latin
America.
Nevertheless, the region’s economic growthwill
pick up to between +3.6% and +3.8% in 2016
and beyond, while long-term prospects are also
positive, with a few exceptions. After overcoming
the 2008 to 2009 crisis, Latin American
economies arewell-positioned to continue on the
path of moderate-to-strong growth, provided the
rest of theworlddoes not fall into recession again.
Within Latin America, Brazil dominates not
just with size, but also near-term growth. The
confluence of the World Cup, Olympic Games,
and energy-related investments suggests growth
above global averages for the next two years.
But as the impact of these mega events passes,
construction growthwill slow.Unless the country
acts to adjust its Byzantine regulatory framework,
it will lag global and regional performance in
the long-term despite its advantages in natural
resources anddemographics.
Indeed, after 2015, slower growth in Brazil
combined with the poor performance of
Venezuela and the uneven growth of Argentina
are expectedhold the regionback.
Constructiongrowth
Latin America accounts for just +4% of global
construction output, but growth over the past
decade gave the region potential as an emerging
market. In 2013, construction output increased
+2.9%, with+3.2% expected in2014.
Total construction spending will peak with a
+5.1% increase in 2015. Panama will experience
the most rapid growth, with construction
bolstered by the Panama Canal expansion and
the subsequent development of the Colón free-
trade zone. In contrast, Argentina andVenezuela
will have the weakest near-term growth, with
Venezuelan construction activity shrinking.
Over the medium-term, the fastest growing
segment in Latin America will be infrastructure,
withPanamaandBrazil seeing themost impressive
gains. Venezuela and Ecuador will experience the
weakest growth thanks to policymismanagement
and resource nationalism.
Nevertheless, thanks to the limited scope and
poor condition of infrastructure in the region,
almost half of total construction spending goes
towards infrastructure. In2013, real infrastructure
construction spending increased +3%, and is
forecast to grow +4.4% in 2014, followed by
+6.1% in2015.
Brazil and Argentina have the largest markets
for infrastructure construction,whilePanamawill
have the fastest growth. Not only does work on
the Canal drive growth, but Panama City is also
constructingCentral America’s firstmetro.
In preparation for upcoming sporting events,
Brazil’s infrastructure is increasing rapidly with
expected growth of +9.5%.
Regionally, transportation projects – the largest
component of infrastructure – will grow most
rapidly, followed by the water and sewer sector,
while energy construction will lag. In the longer
run, growth in infrastructure will moderate
to +1.7% annual growth, with spending on
transportation still expanding the fastest, although
by a narrowermargin.
Non-residential
Over the longer term, spendingonnon-residential
construction will have the highest growth. This
sector showed +2.6% growth in 2013, with the
strongest performing sector office construction,
with +5% growth, while industrial construction
was the weakest, growing +0.7% as strong utility
and refining sector activity was held back by
chemicals and foodprocessing.
Total construction output
World
LatinAmerica
Brazil
Argentina
Colombia
Chile
Venezuela
2014
2015
2016
2013-18Average
2018-23Average
8%
6%
4%
2%
0%
-2%
-4%
