New Construction research report from Business Monitor International is now available from Fast Market Research
Boston, MA -- (SBWIRE) -- 03/18/2013 -- BMI View: Our previously-held view that Argentina's construction sector will decelerate rapidly is playing out, with a contraction of 1.9% estimated for 2012. We have downgraded our outlook for 2013, to reflect a further deepening of the contraction, to -2.6% year-on-year. We believe the recession will last until 2014, when a contraction of 0.2% is anticipated.
Leading indicators for building permits show consistent contractions, as the industry runs out of steam under the pressure of heavy inflation, import restrictions, a funding squeeze and a slowing macro picture. The slump is being mainly driven by the impact of policies on the residential construction sector and falling industrial production; however, infrastructure should remain the one area of growth, as a number of projects progress. This will not be enough to reverse the trend of falling industry value however.
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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.
Building activity has been in decline in year-on-year (y-o-y) terms since April 2012, falling at an average annual rate of 5% in the first 11 months of the year. Consequently, we have downgraded our 2012 y-o-y growth estimate to -1.9%. We have also downgraded our outlook for the near term, with -2.6% expected for 2013, followed by -0.2% for 2014. The decline is being driven primarily by a crash in the residential construction sector, following a ban on dollar transactions and savings. The industry has been largely dollarised for some time, and as such, the ban has subsequently decimated the sector.
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.
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