New Construction research report from Business Monitor International is now available from Fast Market Research
Boston, MA -- (SBWIRE) -- 01/16/2013 -- BMI View: The anticipated slowdown in Argentina's construction sector is taking hold at a more rapid pace than expected; consequently, we have downgraded our estimate for 2012 industry growth to just 0.15% (from a previous 2.8%). Leading indicators show a contraction in building permits as the industry runs out of steam under the pressure of heavy inflation, import restrictions, a funding squeeze and a slowing macro picture. There is potential for a pick up from H213 if Argentina is capable of attracting the private capital necessary to further the project pipeline.
Data Signals Further Weakness Ahead
We have for some time anticipated that Argentina's construction sector would experience an abrupt slowdown in 2012, following inflated growth of 9.1% in 2011 as a result of pre-election spending. However, as imbalances in the economy unwind, inflation ticks ever higher, the business environment continues to deteriorate and revenues decline, the slowdown has been far more abrupt than anticipated, based on leading construction sector indicators.
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Industry output real growth for the sector is up just 0.5% year-on-year (y-o-y) in H112. Higher construction activity data shows an even worse picture, implying further weakness in H212 and into 2013 in terms of industry value. In the first eight months of 2012, activity was down 2.2% on average. Consequently, we are estimating growth of just 0.2% for the year, with risks to the downside and a high potential for a contraction in H212.
Business Environment Deters Investors
The deterioration in Argentina's business environment over the past year is having a devastating impact on infrastructure investment. International investors are becoming significantly more wary of the country and the risks are starting to outweigh the rewards. Currency controls, import restrictions and economic mismanagement are all creating a weak business environment.
Import restrictions are causing projects to stall as the equipment and machinery needed cannot be brought into the country. According to reports, equipment must be purchased from local providers where possible. As a result of a weaker technical standard, high price inflation and a lack of economies of scale, cost overruns and project delays are occurring within the sector. Local labour requirements are also adding cost pressures, as high inflation feeds through to significant wage increases.
Indeed, persistently high inflation is also dampening our outlook for industry growth. Construction sector inflation for H112 has ticked up to 22%, compared to 21.3% for 2011 as a whole. This increase was driven by high costs due to import restrictions, wage inflation and electricity prices, eroding profitability and making project economically unfeasible.
Opportunities If Financing Can Be Found
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