Boston, MA -- (SBWIRE) -- 05/29/2014 -- We are maintaining our moderate construction industry forecast for Argentina in 2014 and anticipate real growth of 1.5%, following a slow industry recovery in 2013. While this is below potential, growth will be driven by energy and transport infrastructure projects - sectors which have struggled due to severe underinvestment in recent decades. We highlight risks to our forecast lie to the downside as the country continues to struggle with fundamental policy and regulatory constraints, which prevent the market from fulfilling its true potential.
Key developments in the sector:
- BMI's Country Risk team forecasts that Argentina's economy will slow in 2014, with real GDP growth falling to 2.2% from an estimated 4.9% in 2013, as currency devaluation pushes inflation higher, weighing on consumer and government spending. Despite government efforts to halt the rapid price growth, our country risk team estimates that consumer price inflation will average 30.0% year-on-year (y-o-y) in 2014.
- On 23rd January 2014, Argentina's central bank dramatically reduced its intervention in the currency market, allowing the peso to fall by 21.3% against the US dollar. We expect that the sell-off will send inflation considerably higher in the months ahead, eroding real growth, hitting purchasing power, and potentially the housing market as a result.
- A blackout in Buenos Aires and its suburbs at the end of 2013 has thrust Argentina's power network into the limelight and has prompted the government to announce plans to spend an estimated US$593mn on improving the power grid network.
- The board of Spanish firm Repsol has approved a settlement dispute with Argentina, ending a two-year dispute over the April 2012 seizure of the Spanish firm's 51% stake in YPF. Under the terms of the agreement, Repsol will receive a fixed package of dollar-denominated Argentine sovereign bonds, with a nominal value of US$5bn. This news could be a significant boost to the country's oil and gas sector over the long term and we believe it could go a long way toward de-risking the Argentine oil and gas sector, bolstering investment in infrastructure.
- Small steps towards reforming Argentina's hydrocarbon sector are being met with enthusiasm by international firms, resulting in a number of investment agreements. The signing of the US$1.2bn investment agreement with US Chevron, though involving a relatively modest sum, could serve as an inflection point for the country, paving the way for further foreign involvement in the Argentine upstream sector.
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