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BMI View: Brazil's construction industry will remain in recession in 2016 and return only to weak growth
in 2017. Major structural changes to infrastructure policies under interim President Michel Temer have the
potential to improve the investment environment over the multi-year horizon, however, for 2016-2017 it
creates greater uncertainty and will limit construction activity.
Latest Updates And Structural Trends
? We have downgraded our construction industry value real growth forecast for 2016, with the industry
now expected to contract by 3.4%. A 6.2% contraction was reported for Q1 2016, while employment in
the sector continues to fall in 2016, down 13% y-o-y in Q1 2016, following a 10% fall in 2015. With
limited visibility over new infrastructure concessions plans, we are cautious toward any potential
recovery in 2017 and have therefore downgraded our forecast to 1.2% (from 2.2%), driven primarily by
base effects following three years of recession in the industry.
? Interim President Michel Temer's infrastructure plans remain light on details and therefore we are
maintaining our forecast over the coming several years at 1.7% on average between2018 and 2025.
Temer has dissolved the Workers' Party's policies which have guided infrastructure investment over the
past decade, including the PAC and the transport concessions programme (known most recently as the
Logistics Investment Programme (PIL)), and is auditing the Minha Casa Minha Vida low income housing
programme. With limited detail on what the future plans will look like beyond the high level details of
the Investment Partnership Programme (IPP) we are holding our outlook.
? Addressing constrained domestic capacity and weak international investor sentiment will be crucial for
the success of President Temer's new infrastructure plans. It will take several months for new regulations
to be worked out and then several more months for tenders to take place, at which point Temer would be
nearing the end of his two-year term. As a result, we anticipate limited short-term positive implications
from the restructuring - particularly on jobs and growth, whilst noting that it is necessary in order to
support a multi-year recovery in the market.