France Infrastructure Report Q3 2009

The third tender for the construction of a new high-speed railway in southern France dominated the transport infrastructure sector this quarter. It was solely a French affair, with the usual suspects - Vinci, Eiffage and Bouygues - shortlisted for the contract to build, maintain and operate the Contournment Nimes-Montpellier (CNM) high-speed railway line. This is in line with our view that the government's intention to accelerate large-scale public works programmes will create opportunities for the French infrastructure players.

We see no reason to alter our forecasts this quarter. First, apart from the progress on the high-speed railways tenders, there has been little else in the market to prompt us to anticipate increased or even sustained activity. Second, according to INSEE, the national statistics agency, economic activity deteriorated in Q309, and is expected to fall further in the coming months. We therefore hold our forecasts steady this quarter, forecasting a contraction of industry value real growth of -5.5% for 2009.

Industry value will decline in 2009 from EUR122bn in 2008 to EUR116bn in 2009 and fall further to EUR112bn in 2010. The stimulus plan represents a risk to the upside for our forecasts, albeit not one that could lift the real growth figure in positive territory easily, given the scope of demand destruction coming from the private sector.

French companies that operate in the infrastructure sectors such as Vinci, Bouygues, EDF, Veolia and Lafarge are among the leaders in their respective fields globally. Though their 2008 financial performance was relatively stable, they have all expressed concern for the short to medium term. They all pin their hopes on the infrastructure-geared fiscal stimulus plans of France, other European countries and the United States and beyond, though there is precious little else at the moment to offer comfort from the downturn.

In December 2008, French President Nicolas Sarkozy announced a EUR26bn (US$33bn) stimulus package to boost the country's economy. Under the scheme, state-owned companies will increase investment by EUR4bn (US$5.1bn) in 2009 and the government will supplement this with a further EUR4bn on high-speed rail projects, dams and canals, university campuses, and road maintenance among other projects. Though this will provide momentum for the sector, the international scope of operations of the French infrastructure majors means that they are also pinning their hopes on overseas fiscal stimulus packages (such as the one in the US for instance) to breathe life in their order backlogs in 2009.