Brazil Infrastructure Report Q3 2013: New research report available at Fast Market Research

From: Fast Market Research, Inc.
Published: Thu Jun 06 2013

Our core view is for Brazilian construction sector growth to peak in 2013 and 2014, at 5.7% and 5.9% year-on-year (y-o-y) respectively. Beyond 2015, we expect growth to revert to below-trend and below potential for the remainder of our forecast period, averaging just 4.6% between 2015 and 2022.

Brazil's construction sector is expected to post the strongest growth over our 10-year forecast period in the near term, with growth expected to peak in 2013 and 2014, following two years of below-trend weak growth (2011/12). However, we believe this rebound in growth is only temporary, and from 2015 until the end of our forecast period in 2022, expect growth to return to below trend rates as momentum dissipates behind public sector spending and private investors remain elusive.

Growth will peak in the near term owing to a number of reasons:

* 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 should reverse from mid 2013, as homebuilders rebuild their balance sheets, improving cash flow, allowing them to once again increase new launches. Indeed, seasonally speaking, a rebound in housing starts should take hold from Q2 2013. * * 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. Whilst base effects were more notable (following the deep contraction in industry value growth in 2009), growth has also been weak over the past two years, adding further support to our view for a rebound. * * World Cup projects: Slow implementation of World Cup projects to date will necessitate a last minute boost in construction. As of July 2012, only 5% of projects related to the tournament were completed. Whilst we think it unlikely that all projects will be finished on time, we are still pricing in a last minute rush to complete necessary projects ahead of the tournament. * *

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