Thursday, July 2, 2009

Latin American Construction Might Be Down, But It's Not Out

Note: Latin American Construction Might Be Down, But It's Not Out," at 2:17 GMT June 29 and repeated at 11:36 GMT June 30, misstated the market to which Levy-Yeyati was referring, in the 13th paragraph. Levy-Yeyati intended to refer to Panama, not Brazil. The correct version follows:

By Joan R. Magee

NEW YORK (Dow Jones)--Not too long ago, real-estate development in Latin America was hot, foreign money was flowing in, and local companies were going public as the construction industry boomed.

The global credit crisis put the brakes on that euphoria, as seen in plummeting commercial and residential expansion, though not all countries in the region have been hit the same way.

One barometer of construction and development is cement output, which is set to decrease 4.1% this year in South America from the previous year. It will fall another 1.4% in 2010, according to a Portland Cement Association report released earlier this month.

The association predicted a 1.7% global decrease in cement consumption for 2009, with growth in China and India masking declines in both developed and developing markets.

Mexico, close to the U.S. both geographically and economically, is one of the worst-hit in the aftermath of the U.S. housing implosion. The country's growth decelerated to 1.3% in 2008 from 3.2% in 2007, and the economy is expected to contract by close to 6% this year.

Mexican Finance Minister Agustin Carstens recently said demand for housing this year will likely fall 7.1% from 2008, even though available financing will be up 2.5%.

The government's National Infrastructure Program calls for public and private investment of around $40 billion a year between 2007 and 2012. And while private investment is down sharply in the current recession, public investment has filled some of the gap, thanks to counter-cyclical government spending.

Public support for infrastructure has been such that shareholders of construction firm Empresas ICA (ICA) have approved a plan to sell up to $350 million in shares to finance infrastructure projects that are already under way or ones the company plans to bid on. And Desarrolladora Homex (HXM), one of the largest Mexican home-building companies, said it expects 8% to 10% revenue growth this year.

Panama, once hyped as a hot destination for U.S. and European retirees looking for second residences, has faltered. Overall construction activity plunged 25% to $97 million in April from $130 million in April 2008, government officials said.

The slowdown follows several years of solid economic growth, buoyed in large part by the Panama Canal widening project. Fast development had even led to concerns about overbuilding among some Panamanian policy makers.

Latin America's largest economy, Brazil, has taken measures to counter a first-quarter drop in construction, which fell 9.8% in year-on-year in the first quarter.

The government recently approved $15.2 billion for low-income housing over the next 15 years, which bodes well for an uptick in growth.

"Most other markets were buttressed not by mortgage credit, but by the incomes of the middle-upper class," said Eduardo Levy-Yeyati, a director and head of emerging markets strategy at Barclays Capital.

The Brazilian economy shrank for a second straight quarter in the first quarter of this year, although the government still has hopes for modest growth in all of 2009, following 5.1% expansion in 2008.

And the 2014 World Cup soccer tournament, though somewhat in the distance, will span 12 cities in Brazil and spur more development.

Brazil's government is already pouring money into World Cup infrastructure, from new hotels to stadiums, in preparation for the waves of tourists to come.

"Construction will weaken as in a typical recession, but will not tank as in the U.S., the U.K. or Spain," Barclays' Levy-Yeyati said.

Indeed, Portland Cement Association predicts cement output in South America will rise 6.9% from 2010 by 2011, auguring a turnaround in the near future.

-By Joan R. Magee, Dow Jones Newswires; 212-416-2672;

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