Now Available: Brazil Infrastructure Report Q1 2014

We are maintaining our expectation that growth will reach just 2.8% in Brazil's construction industry in 2013, and although picking up in 2014 to 4.1%, will remain below potential. Over the medium term, we maintain our outlook that despite significant opportunities in Brazil's infrastructure market, full potential will not be realised until improvements are made in the institutional, regulatory and financial environment.

Even with construction costs moving negative, Brazil's construction industry continues to post weak growth. Despite the second growth acceleration programme running since 2010, a US$235bn concessions programme and investment into World Cup infrastructure, growth has remained persistently low.

The bottleneck appears to be on the public sector side, with institutional inefficiencies preventing projects moving forward, whilst constant changes to the regulatory environment seems to delay tendering from moving forward. The concessions programme will be a key test for the government's ability to improve the regulatory environment, and more importantly, convince investors that Brazil is an attractive investment environment; however, it is off to a bad start, with frequent changes in regulations having been made in the run up to the first tenders, and a mixed result in the first highway concessions. Consequently, we are not encouraged that the programme will reach full potential and anticipate only partial take up by private investors, with a slant towards domestic companies and port projects.

Full Report Details at
- http://www.fastmr.com/prod/723542_brazil_infrastructure_report_q1_2014.aspx?afid=301

Residential construction should rebound:

Despite continued growth in the housing market over 2012, with house prices and mortgage applications reporting strong expansion, the construction of new residential properties stagnated. Housing starts fell by 37% y-o-y in 2012. This trend has reversed in line with expectations over the course of 2013, as homebuilders rebuild their balance sheets, improving cash flow and cost pressures ease allowing them to focus again on subsidised mortgage housing. This end of the market is crucial for homebuilders considering that interest rates are now being hiked following a steep easing cycle in 2012. As of the first seven months of 2013, housing starts are up 45%, however, we expect this to slow into 2014 in line with declining affordability of mortgages.

Events align to boost infrastructure growth:

The coinciding of the final year of the BRL959bn PAC II investment package and the presidential elections in 2014 should work to boost infrastructure industry value. The same interlinking of events precipitated an 11.7% rise in construction sector growth in 2010, as PAC I projects were pushed through to meet the deadline and pre-election spending took hold.

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