Moody's: Project backlog, recovery in public investment to sustain construction in Peru

12:22 | Lima, Aug. 9.

Construction will continue to benefit from Peru's GDP growth rates for 2019-20, especially with a solid backlog of private and public projects, including US$15 billion from big mining and infrastructure projects through 2020, Moody's Investors Service has forecast.

"Despite subdued public investment in the first half of 2019, we expect construction will remain stable through 2020 as public investment recovers," it said.

The contraction in public investment in January-May 2019 —from a year earlier— reflected an unfavorable base effect compared to a period of accelerating reconstruction following devastating Coastal El Niño floods, and the fact that new regional and local government authorities were settling into their posts following elections for those posts in late 2018.

"The end of the Pan American Games removes an important boost for the construction sector (…)," the credit rating agency expressed.

Since the late 2018 elections, the Economy and Finance Ministry has pushed to help newly elected officials oversee the completion of existing projects, and to design and approve new ones, in order to stave off an overall drop in public investment.

Ministry authorities have accelerated transfers to local governments that usually occur closer to mid-year to help quicken implementation, but uncertainties about the efficacy of the government's plan still weigh on investor confidence in Peru. 

"In 2019-20, continued growth in private consumption and still-sustained private investment in Peru will result in stronger volumes sold for Union Andina de Cementos S.A.A. (Unacem, Ba2 stable)," Moody's expressed.

Although closely linked with the construction activity, Peru's cement producers are less cyclical, relying on self-construction and cement marketed as a consumer product rather than a construction material.

But the cement producers' margins will depend on their ability to pass cost increases to their customers. Although cement demand growth will remain stable through 2020, it will not rise enough to make room for the incumbents' capacity, new entrants and imports.

Editor's note: Based on information provided by Moody's.


Published: 8/9/2019
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