Boston, MA -- (SBWIRE) -- 02/13/2013 -- BMI View: We expect growth to decline sharply in 2013 and to continue to deteriorate over our forecast period. Our 5% construction industry real growth forecast for 2013 is partly due to base effects from exceptionally strong growth in 2012 (estimated at 15.8%), but is also due to the continuation of economic and policy mismanagement represented by the re-election of Hugo Chavez. Consequently, we believe the government will struggle to finance high value projects such as the social housing programme, new railways and revitalising the ports and electricity sectors. Consequently, we expect growth to average just 1.3% between 2014 and 2021.
Despite strong growth in 2012, and a number of infrastructure projects promised by the government, as well as a continuation of the housing construction programme, which drove activity in 2012, we do not expect strong growth to be repeated in 2013. Indeed, factoring in base effects, high inflation, slowdown in production growth in oil, and waning momentum to pursue a social agenda following the election, we believe 2013 will be the start of a steep deceleration in growth. While there are a number of projects which, if progressed, would present upside potential, we believe the fundamental weakness will be exposed.
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Fundamental Weaknesses Underlining Pessimism:
- The re-election of Huge Chavez for his third six-year term implies a continuation of economic mismanagement policies, which have been detrimental to the economy and business environment. Arbitrary decision making, anti-market policies and under investment in favour of populist spending has preventing investment in infrastructure over the past decade, and we expect continuation of the same over Chavez's next term.
- Rising oil production will do little to help the government fund investment programmes as much of its future oil production has been sold to China, with fund diverted to the social spending agenda enacted over 2012. Consequently, even though oil prices will remain elevated over the near term, and production is expected to increase, the government's fiscal position will not improve by the same level.
- High inflation is eroding real growth and we expect this to be exacerbated over the short term. Our country risk team is anticipating currency devaluation in Q113, which will place greater upside pressure on the cost of imported building materials. We are factoring in inflation above 20% until 2016, which is driving our low real growth outlook over the period.
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