BBVA expects a 13% drop in construction this year; low public investment slows works

Julio Gutierrez

La Jornada newspaper
Wednesday May 27, 2020, p. 27

Low levels of public investment in recent months have slowed the creation of infrastructure works. This is one of the causes that caused the historical fall in the construction sector in March and the decline is expected to continue until the middle of 2021, said BBVA México, the bank with the largest presence in the financial system.

The crisis generated by the Covid-19 pandemic will also have repercussions on the sector, and the low activity it has will cause it to fall 13 percent during 2020, estimated Carlos Serrano, chief economist at BBVA.

He explained that the fall in construction is mainly explained by the socioeconomic policies adopted by the federal government since 2019, and there is less and less space in the fiscal field to obtain income that triggers infrastructure works. Therefore, of the main concerns is that the government has the capacity to carry out large projects.

The Covid-19 took the construction sector into a situation of significant weakness, we saw that the sector had already contracted in 2019 in a significant contraction of 5 percent, which responds to a fall in the confidence of investors in the sector and There was a policy of closing construction permits for the then new government, which was reduced to a total stoppage in activities, he said in a video conference.

BBVA estimates that the construction sector could lose 200 thousand workers throughout this year.

Tax changes are urgent

To reverse the current situation, he considered, it is essential that the administration carry out fiscal changes and incentivize greater revenue collection to increase levels of public investment, since without more fiscal funds for investment, the country will lag behind in highway infrastructure. , port, hospitals and schools that are required.

On Monday, the National Institute of Statistics and Geography (Inegi) announced that construction, a sector that contributes 8 percent of gross domestic product, fell 17.1 percent in March, the lowest level since 2006.

Carlos Serrano said that the decline could persist in the medium term due to the changes made by the government in the energy sector and the use of renewable fuels, as this makes the price of inputs more expensive.

If we end up seeing a reversal in the investment of renewable energies to the connection of companies to the electricity grid, it will be an increase in electricity prices that will make the country less competitive, he explained. .

Stable, bank credit

In the presentation of the Real Estate Situation report, Serrano pointed out that there is a record of a greater number of loans originating in the sector, so that the loan portfolio reaches the date with a controlled delinquency rate.

Nonetheless, it is to be expected that the default rate may rebound slightly to 5 percent in the year stemming from the coronavirus crisis, although financial institutions have the ability to control it.