Brazil Infrastructure Report Q1 2009

Industry Forecast Scenario Like other countries, Brazil is suffering the ill effects of the global financial crisis and the subsequent global economic downturn. The situation is exacerbated by the fact that the Brazilian economy is so strongly linked to the US economy, the epicentre of the current problems. Private sector-led construction activity is now taking a big hit, because of a lack of investment funds, as well as reduced confidence among builders and end-buyers of commercial properties. Against such a backdrop, BMI now predicts that Brazil's economy will contract in 2009. However, the drop in private sector activity should be partly offset by strong ongoing support from public sector investment in infrastructure. The government launched the so-called growth-acceleration programme (PAC) in 2007. The PAC programme encompasses building initiatives such as airports and ports nationwide, the repair of highways, the development of energy projects in the north, and the provision of housing, water and sewage systems to benefit poorer Brazilian communities.

We have revised our construction sector estimates for 2008 onwards. Primarily, this comes as a result of new methodology being introduced in our forecasting method, a change that has been introduced across the spectrum of BMI's Infrastructure Reports in an effort to increase the relevance and reliability of our data.

For Brazil, we have revised down our forecasts and predict that real construction sector growth will slow to 2.5% in 2009, from an estimated 6.5% in 2008 and just over 8.5% in 2007. After 2009, we predict that the pace of construction sector growth will pick up again in Brazil, on the back of a brightening of global economic conditions, led by massive fiscal pump-priming in the US.

Risks to our forecasts are largely to the downside, particularly in 2010. The external threat generated by the global economic downturn is the main risk factor. In the worst-case scenario, a prolonged recession in the US and elsewhere would severely hamper Brazil's export growth, GDP growth, and (crucially) government revenues over an extended period, with attendant implications not only for commercial construction in the country, but also public investment and infrastructure tenders.

In November 2008, representatives from Rio de Janeiro's Galeo port said that, in spite of the global financial crisis, the planned US$1.1bn port expansion would continue. Included in the project would be the modernization and expansion of the Porto Novo wharf facilities and a dredging that would increase channel depth from 14m to 18m. Other planned upgrades include the construction of a dry dock by Wtorre Engenharia, the creation of a shipyard by the Quip consortium, and the modernization of the Copesul/Braskem and Granel Qumica terminal