Boston, MA -- (ReleaseWire) -- 02/19/2014 -- We have upwardly revised our forecast for Argentina's construction industry this quarter in light of recent official data. Having experienced strong growth in Q313, we now estimate low but positive industry growth at 1.0% in 2013, recovering from the sharp contraction in 2012. We anticipate this recovery trend to follow through 2014 when we forecast 1.5% y-o-y real growth. There are, however, downside risks to our forecast 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 2.9% from an estimated 3.2% 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 remains above 20% in year-on-year (y-o-y) terms.
- On January 23 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, hitting purchasing power and potentially the housing market as a result.
- Policies on the residential construction sector seem to be having a positive effect on the industry as building activity has reported consistent growth over recent quarters. In turn, we also expect infrastructure to contribute to growth as a number of transport and energy projects progress.
- News that Argentina has reached an initial compensation deal with Spanish-owned Repsol could be a significant boost to the country's oil and gas sector over the long term. While a deal has yet to be finalised, if an accord is reached, we believe it could go a long way toward de-risking the Argentine oil and gas sector, bolstering investment in infrastructure.
- 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 biggest project in the planning phase is the combined Nestor Kirchner (600MW) and Gobernador Jorge Cepernic (1,140MW) hydropower plants. The two power plants have a combined cost estimate of US$5bn and would take 66 months to build. This project was awarded in August 2013 to a consortium comprising domestic companies - Electroingenieria and Hidrocuyo - and the Chinese Gezhouba Group. The new dams total electricity capacity upon completion will represent almost 17% of Argentina's current hydropower capacity.
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