Boston, MA -- (ReleaseWire) -- 09/06/2012 -- BMI View: We have downgraded our near-term growth outlook for Brazil's construction industry as long-held concerns over procurement play out on investment. High costs and difficulties procuring projects are weighing on real growth rates, and we have revised down our 2012 growth figure from 6.2% to 4.2%. Going forward, we expect growth to peak in 2013 and 2014 as investment is pushed through ahead of the World Cup and presidential election.
Our long-held concerns over Brazil's construction sector are playing out on growth rates and investment levels. Despite a huge investment plan backed by the government, growth is disappointing, with Q112 real growth coming in at just 3.3%. As a result, and given the persistence of our concerns over the market, we have revised down our 2012 growth outlook from 6.2% to 4.2%. Despite this revision, we believe our medium-term trend for growth to accelerate is still in place. Growth should still peak in 2013 and 2014, although these figures have also been revised down by around one percentage point to 7% and 6.3%, respectively.
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Inflation and Rising Costs
An increasing number of companies active in Brazil's construction sector have cited rising costs as a difficulty when doing business there. High costs, ranging from the price of hotel rooms to the wages of trained engineers, are hitting profit margins and bottom lines. A shortage of engineers especially is hitting heavy industries, with the pain felt across mining, oil & gas, power and transport. In addition, the cost of materials, equipment and services has also been rising, albeit by a lesser degree.
This trend has played out on the profit margins of Brazilian homebuilders and building material providers. We also anticipate it will have hit the bottom lines of the country's largest construction and engineering companies, most of which are private. This trend is evidenced in the data emerging from the sector; whilst our nominal forecast for the country's construction industry value remains much the same BRL226bn, our real growth outlook has been revised down, due to higher-than-anticipated industry inflation.
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