By Benjamin Duyck, AEM Director of Market Intelligence

Major Latin American economies are poised to post stronger GDP growth in 2018, coming on the heels of a more subdued 2017.

According to Business Monitor International (BMI), the region as a whole is expected to post a real growth of 2.4 percent in 2018, 2.7 percent in 2019 and 2.9 percent in 2020, supported by improvements in the outlook for commodity prices, rising business confidence, increased consumption and stronger exports. Growth, however, is not evenly distributed. Economies such as Argentina, Brazil and Chile saw real GDP growth accelerate each quarter, while results in Colombia, Mexico and Peru were more mixed.

Even though there is economic growth, the region continues to struggle with socio-economic and political turbulence. One example is uncertainty regarding the regions policy outlook post-2018, as elections in Brazil, Mexico, Colombia, Paraguay and Costa Rica will be characterized by anti-establishment candidates leveraging voter’s frustrations, particularly with regards to corruption. 

Another source of turbulence, especially for Mexico, is the result of the renegotiation of the North America Free Trade Agreement (NAFTA), which could result in the termination of the agreement, negatively impacting Mexico’s economy. Actually, one of the larger themes for the region for 2018 as a whole is the increased priority to secure trade negotiations meant to boost exports and diversify Latin American countries' trading partners. 

Social-economic turbulence can also be found in a wave of unrest originating from rising fuel prices, which will undermine social stability over the next couple of months. The Latin American consumers’ ability to absorb these is limited, and might lead to further unrest and feed into a larger anti-establishment sentiment.

In order to sketch a larger picture of the region that takes in consideration both economic growth and potential political turbulence, we can use BMI’s Country Risk Reward Index. BMI's Country Risk Index provides a country-comparative evaluation of the political, economic and operational risks to stability over short- and long-term time horizons. The higher the score, the more attractive the market.

Similar to the overall economic growth in the region, the Latin American construction industry will see renewed growth after three years of declines. In 2018, BMI expects a real growth of 1.9 percent in the construction industry, which will lead to the first steps in recovering the 5.2 percent loss the industry suffered since 2014. Between 2018 and 2022, this real growth is expected to accelerate to an annual average of 2.6 percent. This sustained growth will be supported by an increase in commodity prices, private capital infrastructure developments through Public Private Partnerships (PPPs), a model that is gaining popularity in the United States, and the overall economic uptick described above.

Colombia and Argentina will drive growth in the forecast period of 2018 through 2022, punching in at an average annual growth of 5.3 percent for Colombia and 3.5 percent for Argentina. The Argentinian growth spurt is driven mostly through new PPP projects. While Panama might have been growing at 13.8 percent over the past five years, it is now expected to slow to 3.2 percent following the completion of the Panama Canal project. Other countries of note are Nicaragua and Guatemala. 

Though, similar to the uneven economic growth, not all countries are experiencing strong expansions in their construction industry. For example, Brazil, the largest construction market in the region, is well on its way to complete a lost decade with an expected annual growth of only 1.4 percent over the next five years.

Real construction spending, an important driver of growth in the construction industry is set to grow 2.3 percent in 2018, following a 2.9 percent decline over the previous year. Between 2017 and 2022, spending in the region is expected to grow 3.3 percent annually, which is in line with the overall global construction spending growth.

Overall, the next five years should bring the Latin American region closer to the European and North American markets. This optimism is visible in the project pipeline shown below. The current pipeline represents roughly 3000 projects. While only 60 percent of projects have an assigned U.S. dollar value, this still represents $1.2 trillion in U.S. dollars. About 40 percent of projects are currently in the pre-tender.

With construction markets on the rise, demand for construction equipment is expected to continue to grow. According to Allied Market Research, the Latin America heavy construction equipment market size was valued at $4.31 billion in 2016, and is projected to reach $6.391 billion by 2022, growing at a CAGR of 6.8 percent from 2016 to 2022.[1] More detailed numbers can be obtained by participating in AEM’s Latin American Stats programs.

U.S. exports of construction equipment to Mexico and South/Cental America totaled $2.7 billion in 2017, up 16.5 percent from 2016, following several years of declines.

Despite the cyclical challenges OEMs face time and again in key markets, Latin America continues to provide significant opportunities. The region has proven to be an attractive field for companies planning to expand and solidify their operations and market outreach. The importance of having a consistent and engaged presence based on long-term growth is often crucial. AEM’s objective is to help member companies identify these opportunities through services that assist and serve them in ways best aligned with their strategic business direction.

In 2015, AEM launched a construction equipment-focused trade show, CONEXPO Latin America, to help facilitate business opportunities. The triennial AEM-owned and operated exhibition is a great example of the collaboration between AEM and its members. CONEXPO Latin America was born from the expressed need for a CONEXPO-quality, regional event that would provide manufacturers of heavy construction equipment the professional platform needed to showcase their products and services, a platform to interact with qualified Spanish speaking buyers in Latin America.

CONEXPO Latin America will return to the region October 2-5, 2019 in Santiago, Chile.

[1]Latin America Heavy Construction Equipment Market by Equipment, Application, and End User: Opportunity Analysis and Industry Forecast, 2014-2022. 

For more information on Latin American markets or other industry related market data, please contact AEM Director of Market Intelligence Benjamin Duyck at bduyck@aem.org. This article was written using information from AEM vendors BMI, I.H.S. and the Census Bureau.

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