Japan Infrastructure Report Q2 2016
BMI View: The sluggish growth in construction and infrastructure growth in Japan is a sign thegovernment's aggressive stimulus measures have already begun to wear off. This again underscores ourlong-held view that Japan's fiscal stimulus programme is not sustainable for the infrastructure sector andsignificant structural reforms are needed to restore competitiveness. To this end, a new market on the TokyoStock Exchange for infrastructure funds has the potential to boost private participation in the industry,while simultaneously taking pressure off government expenditure. Minimal construction industry growth isexpected over the coming five years, followed by industry contraction to 2025.
Latest Updates And Structural Trends
Japan's construction industry growth will remain extremely weak, albeit positive, over the coming fiveyears. The country's economic stimulus measures are not sustainable over the long term and will need tobe accompanied with structural reforms to have positive long-term effects. At the time of writing we evenexpect the industry to contract from 2021 onwards.
Transport infrastructure growth will be weak, albeit will remain in positive territory throughout ourforecast period, averaging a yearly 0.9% growth rate over our 10 year forecast period. Within thedifferent sub-sectors of the transport infrastructure indicator, the roads and bridges infrastructure and therailway sub-sectors will drive growth. High speed rail projects will lead transport sector investments.
We highlight growth in the residential and non-residential buildings sector will be driven by thecontinuing reconstruction of Miyagi, Iwate and Fukushima Prefectures, following the March 2011earthquake and tsunami. It is our view a significant amount of the reconstruction work is stilluncompleted as of early 2016. Housing starts have been on an uptrend since February, growing 2.8% y-oyover 9M15, with interest in the country's property market buoyed by the Olympics.
We see opportunities in coal-fired power plants in the Japanese energy infrastructure sector, with thesegment supported by lower costs and easing regulations. Gas will continue to provide opportunities as itwill be required to make up for the reduced nuclear output throughout the forecast period.
The outlook for a progressive return of nuclear energy in Japan will create opportunities for equipmentmanufacturers and EPC (engineering, procurement, construction) contractors operating in Japan.
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