Construction in free fall: it fell again in May and expectations deteriorate

The construction sector is heading to close the first semester in negative, considering that in May it fell 6.2% and in the accumulated since January, 9.1%, according to projections of the Peruvian Chamber of Construction (Capeco).

Already during the first third of 2023, construction had the worst performance of national production, falling 9.8%. In general terms, since January of this year, the GDP of this sector has suffered losses (see infographic).

Guido Valdivia, executive director of Capecodetails that the deterioration is explained by the decrease in cement consumption —main indicator of the item— of 12% during May, thus splicing nine consecutive months down.

Already in April —adds Valdivia— cement consumption, with its 16.1% drop, had reached “its worst performance” since the -32.8% seen in June 2020, when the coronavirus paralyzed the country.

Why is the landscape complicated?

The Central Reserve Bank of Peru (BCRP) anticipates that the private investment fall 2.5% this year. This reading is more prudent than that of agents such as BBVA (-3.0%) and Apoyo (-5.0%).

Valdivia adds that companies in the construction sector have also reduced expectations about their commercial operations for the current year. For example, companies expect less activity in infrastructure (-4.6%) and buildings (-3.5%). In total, they expect the sector to fall 2.8%. Only suppliers estimate growth of 0.1%.

Furthermore, in the current context of climate emergency Due to the presence of El Niño Global, the BCRP estimates that construction will stagnate at 0% this year.

Statistically speaking, zero growth is not always the worst scenario for a sector, but Valdivia believes that even reaching this threshold will be difficult because construction GDP would have to rebound to 5.2% from June to December.

“This implies an increase of 43.2% the average monthly production levels obtained in the first five months of the year”, he summarized.

Short space to face El Niño

Valdivia considers that it is necessary to prioritize investments and interventions to mitigate the ravages of the El Niño phenomenon, and said attention requires an “adequate infrastructure reconstruction strategy.”

One of these actions must be the strengthening of the Authority for Reconstruction with Changes (ARCC) in its eagerness to satisfy the demands in the 12 regions that would be most affected by the Global El Niño.

“However, neither the creation of the National Infrastructure Authority (ANIN) nor the new State Procurement Law (LCE) guarantee the success of the urgent and indispensable process of modernization of the integral management of infrastructures, which requires a more far-reaching reform”, he said.

Prioritize social housing

The Ministry of Housing, Construction and Sanitation (MVCS) must promote social housing in all possible urban areas, according to the representative of Capeco: that is, maximize the operations of programs such as Techo Propio and Mivivienda, since in those families with minors income rising construction costs and interest rates can be an insurmountable barrier.

As reported The RepublicAs of May of this year, only 4,520 families purchased a home with the help of the Family Housing Bonus. There was a drop close to 40% compared to the same period in 2022.

Likewise, the disbursement of mortgage loans fell 24.7% up to April compared to the same period last year, influenced by the 37.3% drop in loans from financial institutions and despite the recovery of operations funded by Mivivienda ( which rose 7.4% in May).

Data

Advance. The Mivivienda Fund signed two new lines of credit for US$300 million at 6.5 years with JP Morgan. These resources are guaranteed by the Multilateral Investment Guarantee Agency (MIGA), which is part of the World Bank group, and will be used to finance access to housing green and social housing.

Rate. According to him MVCS, to date, 33,335 loans have been granted for the promotion of sustainable housing nationwide. 98,091 units offered are certified as eco-friendly.

Construction sector would have closed in negative during May