Japan Infrastructure Report Q3 2008

The outlook for the Japanese infrastructure sector looks bleak. BMI forecasts that the construction industry will go into recession in the coming years. We are more bullish on the outlook for the Japanese construction majors, who have expanded in other markets in Asia and beyond and have cemented their presence in several different markets. In BMI's Q308 Japan Infrastructure Report, we forecast that the construction industry will contract by 2.44% in 2008. We are bearish about the future and forecast an average contraction of real growth in the construction industry by 1.9% annually between 2008 and 2012.

This will cost the industry US$15.7bn BMI forecasts that Japan will be one of the few markets worldwide, which will see a persistent recession in its construction sector, with wide-ranging implications for the infrastructure sector of the country. It should, however, be noted that Japan's construction industry remains one of the largest worldwide, with a value of close to US$280bn. This value, however, is getting eroded each year, as the major construction and engineering giants of Japan turn increasingly towards emerging markets for lucrative, large-scale contracts.

The Japanese economy has been at the forefront of recent contraction in world markets and huge equity sell-offs, which in turn have given rise to liquidity squeeze and risk aversion in the credit markets. The economy and growth levels of Japan rely on the construction sector to a far larger degree than other G8 countries. For this reason, when the country's construction numbers tumbled in Q407, macroeconomic growth forecasts also declined. We have revised out forecast downwards for 2008, following BMI's bearish revision of the real GDP growth in Japan.

Japan's strength remains in its business environment, which presents some of the lowest levels of risk worldwide. For this reason, in our business environment rating, the country ranks in third place in the Asia Pacific region.