Boston, MA -- (ReleaseWire) -- 02/24/2014 -- We forecast 5.3% real growth in the construction sector over 2014 and growth should remain buoyant over the short-term thanks to projects already under construction fuelling industry value. However, we highlight the downside risks this quarter with allegations of corruption within the construction industry adding to the financing headwinds the industry is facing in light of a major depreciation in the lira. As such investor confidence in the Turkish construction sector will deteriorate posing a threat to our longer-term forecasts, as this 'perfect storm' of social, political and macroeconomic headwinds is certainly going to keep international investors in the sidelines.
There continue to be downside risks to Turkey's healthy construction sector outlook stemming from the major depreciation in the lira making the cost of foreign credit prohibitively high, which exacerbates the underdeveloped domestic long-term financing market. Despite these factors and elevated political risk over the latter stages of the year, 2013 saw robust growth in the industry. That said, with a corruption probe having been launched in the early stages of 2014 we expect that growth may suffer over the medium-term as investors hold off on committing to projects until after upcoming elections. However, we highlight that activity in the equity markets does not indicate that investors are overly concerned and as such have not adjusted our forecasts. Although we emphasise the downside risks of the corruption probe, on the back of a strong project pipeline, we maintain a healthy growth outlook. Average real construction industry growth for the period 2014-2022 is forecast at 5%.
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We see sustained healthy growth in Turkey's construction sector over our 10-year forecast period; however, due to the country's history of high volatility and abrupt trends, in addition to the potentially far-reaching repercussions for the Turkish economy if there were to be a contraction in the construction sector, we are keeping a careful eye on any developments.
Key project developments informing our forecasts:
- The rail sub-sector is already due for major investment, with the Turkish government planning to invest TRY20bn (US$11bn) in expanding Turkey's rail network over the next three years. In addition, the government has subsequently announced it will upgrade 70 percent of the railways to "double" lanes, a dramatic increase from the current proportion of only 4 percent of the country's network.
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