Boston, MA -- (SBWIRE) -- 10/17/2013 -- Mexico's construction sector started 2013 on a weak footing as President Nieto's transition to power caused a period of low activity. This was coupled with a financial crisis amongst the homebuilders, which saw construction activity in the segment crash. As a result, we have downgraded our 2013 outlook for growth to just 1.7%. However, our medium term outlook for growth in the sector remains firmly in place, supported by the announcement of the US$315bn National Infrastructure Plan. Between 2013 and 2017 we anticipated annual average construction industry growth of 4%. Energy & utilities infrastructure will likely lead growth but transport investment - specifically rail and roads - is also expected to be significant.

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Infrastructure high on Presidential agenda

President Pena Nieto has called for a greater private sector role in the economy and presided over the country's first healthcare PPP in the State of Mexico. For this reason, we expect the PPP law to gain significant traction and spearhead a wave of new infrastructure projects. We have already seen a commitment from the government to pursue reforms in the Energy sector and provide investment across the sector.

Existing pressures on Mexican homebuilders have been exacerbated however by the government's latest housing policy announcements. Fears that the measures will result in write-downs of land value, high cost outlays and the uncertainty over government support during the transition is weighing on investor perception. Subsequent fears over cash flow and the cost of capital is creating a vicious cycle, with homebuilder equities tanking and bond yields spiking. We see little short-term upside potential for the sector until more details are released; however, longer term, government measures should create a more efficient and sustainable housing sector.

Energy sector to drive change

We believe that the ability for Mexico to reverse its severe macroeconomic imbalances and generate the robust growth necessary to propel it to 'developed market' status still hinges on the passage of substantive energy sector reform. We have registered US$17.6bn in projects either under way or planned in the subsector. Consequently, a strong project pipeline is guiding optimistic forecasts.

We forecast annual average growth of 12.1% for the country's water infrastructure sub-sector, 7.5% for power plants & transmission grids and 7.6% for oil & gas pipelines. In the transport sector, tangible improvement into attracting private investors will need to be seen before we factor in stronger growth to our forecast; however, we have upgraded our outlook for the rail sub-sector, based on a dedicated plan to expand rail capacity in the country, which is showing signs of progress and has government support.

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