Brazil Infrastructure Report Q2 2016
BMI View: Brazil's construction sector remains in a state of flux, with the recession expected to persist in 2016 as tenders are delayed, companies face a high cost of capital, the public sector remains in gridlock. The recession will ease as the government filters funding into the sector through state banks, however, a longer term recovery is unlikely without necessary reforms.
Latest Updates And Structural Trends
We are broadly maintaining our outlook for Brazil's construction sector after 2015 real growth came in line with our estimate, at -7.6%. We maintain our expectation for the recession to persist in 2016, albeit easing to -2.7%, with a deeper recession expected in the broader economy and ongoing implications from the Lava Jato corruption scandal directly impacting the construction sector and creating significant political uncertainty.
We continue to expect growth to return in 2017, although we have marginally downgraded our forecast to 2.2%. Risks are heavily to the downside from growing momentum behind efforts to remove President Dilma Rousseff from office either through invalidating the election results or impeachment - although our core view is currently for Rousseff to serve out the remainder of her term.
With President Rousseff having lost considerable political capital and the Brazilian government as a whole in turmoil, we see little indication that necessary reforms to restructure the market will take place. For example, efforts to remove a reliance on government financing for infrastructure have been wound back as the recession takes hold and the government seeks to support the sector. Without major structural changes, we expect Brazil's construction industry to continue to underperform its significant potential, and thus maintain our muted long-term forecast, averaging 1.8% between 2017 and 2025.
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