CIC - Construction Intelligence Center

Construction growth in Argentina hit by major corruption scandal

24 Sep 2018

GlobalData has sharply revised down its forecast for construction growth in Argentina given the negative impact of a major corruption scandal in August involving allegations that officials from the previous administration took bribes from construction firms in return for public works. Construction activity will also be hindered by the general deterioration in the economy. Construction output growth in real terms is now forecast to slow to 4.5% in 2018 (from 12.4% in 2017), and to 4.0% in 2019. However, further downward revisions are likely.

 

Although the latest construction value-add data showed continued fast growth in construction activity in Q1 2018 (of 9.7% year on year), figures from the Synthetic Indicator of Construction Activity (ISAC) show an ongoing deceleration in construction activity. According to the ISAC, year-on-year growth slowed to 0.7% in July from an average of 11% in the preceding six months. Some of the main factors contributing to the deceleration in activity in recent months include higher interest rates, limited access to financing, a weakening currency, and high interest rates.

Increasing interest rates are limiting access to credit as banks are withdrawing financing from public works companies. On August 30th, the central bank of Argentina raised its benchmark rate from 45% to 60% in an effort to curb inflation and halt a slide in the peso, which has already lost over 52% against the dollar in the year to date.

In addition, the government’s September announcement of new austerity measures to cut the deficit and shore up investor confidence is expected to further hinder growth and investment in the industry next year. Despite the US$50 billion credit line the government secured from the International Monetary Fund (IMF) in June, investors are still doubtful of the government’s ability to meet its financing needs. Currently, Macri’s administration is trying to persuade the IMF to speed up the disbursement of cash sooner than previously agreed.