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GlobalData: Mexico’s construction industry forecast for modest growth

Published by , Deputy Editor
World Cement,

Mexico’s construction industry is forecast to recover in 2020 and grow by 1.1%, following an estimated contraction of 5.1% in 2019. This growth is expected to be driven by the government’s efforts to boost public and private investments in infrastructure, says GlobalData.

Dariana Tani, Economist at GlobalData, comments: “In November 2019 the Mexican government unveiled the first phase of its ambitious US$42 billion National Infrastructure Plan for 2020 – 2024 aimed at raising infrastructure investment to more than 5% a year and delivering annual economic growth of more than 4% over the coming years. The plan consists of 147 projects in roads, railways, airports and ports, as well as telecommunications, with most of the capital coming from the private sector.”

“However, uncertainty over the policies of President Andrés Manuel López Obrador who took office in December 2018, will continue to hurt investment and impact on the industry’s growth this year.”

“In December 2019 the Federal Electricity Commission, the state-run utility company, announced it was seeking to cancel some self-supply power contracts that allow companies to generate electricity for their own businesses, using mostly solar energy or natural gas, and said it was also looking to eliminate discounts on transmission costs for power generators to use its network, incensing the private sector and marking the latest blow to the country’s promising renewable energy market.”

“If approved, the measures would remove investment incentives for the private sector to invest in new green projects. It would also affect hundreds of contracts with local and international power generators including Iberdrola SA, Enel SpA and Acciona SA, among others. According to the Mexican Wind Energy Association, the self-supply contracts in operation account for US$16.2 billion in investments, of which 57% are renewables.”

Although the recent approval by the US senate of the United States-Mexico-Canada Agreement (USMCA) trade deal constitute an upside risk, it is unlikely to be sufficient to increase private investments. Mexico’s government will need start to respect contracts and avoid sending mixed messages over public policies, as well as take more concrete policy actions to tackle security issues, strengthen the rule of law, and reduce corruption – if it is to restore investors’ confidence and create a more favourable environment for investment.

Tani concluded: “An unsettled external environment will continue to complicate policymaking: A slowdown in US growth, for example, arising from increasing global trade tensions, and global financial market volatility present significant risks for the Mexican economy while a decline in oil revenues due to lower oil prices, will make it harder to achieve the government’s fiscal targets.”

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