Around the globe
South America
General economic overview
According to the IMF, growth in the South American countries slowed by an estimated 7 percent in 2020 and recovered by 6.8 percent in 2021. Higher commodity prices, stronger international trade and a benign financing environment helped boost their recovery. Nominal GDP, however, is not yet at pre-pandemic levels, and this may take up until the end of 2022 to achieve.
The recovery has been marked by rising inflation with prices increasing by 8.3 percent on average. Food, energy, higher import costs as a result of supply disruptions, exchange rate fluctuations, and a shift in consumer demand for retail goods are all contributing to the increase in prices.
Higher wages and indexation contracts are also pushing up prices further. Interest rates are now being increased across the region to curb inflation. Brazil now has interest rates of 12.75 percent, some of the highest in the world. In 2022, growth is projected to slow as higher interest rates, inflation and weaker investment constrain growth.
Construction sector performance
Construction costs are increasing strongly with most regions indicating tender price increases approaching or meeting double-digit levels. Business confidence is mostly positive, buoyed by the recovery in late 2021, but increasingly frustrated by supply chain disruptions and high inflation.
Construction programmes are taking longer and lead times for materials are increasing. Strategies to get around supply shortages include early procurement, near-shoring manufacturing and more use of charter air freight to obtain vital components and materials. In contrast to the labour shortfall being seen in construction in other regions, construction labour is generally available.
Top-performing sectors
Industrial, manufacturing and logistics are the top-performing construction sectors in most regions including Chile, Colombia and Brazil. During the pandemic, online shopping increased strongly, with Chile seeing the largest growth.
With more people working from home, software collaboration tools are being rolled out and demand for data centres is translating into more projects. Brazil is the most mature market with several major local companies making big investments. A 70MW data centre was unveiled by Ascenty in Vinhedo in São Paulo state during 2021. Amazon is also opening its first South American data centre in São Paulo.
The pandemic slowed the progress of housing developments in many regions. Housing shortages are common, especially for low-cost affordable housing. For example, housing construction in Chile is forecast to be 20 percent lower in 2022. In Brazil, there are several large-scale government projects, including low-income housing programmes like "Casa Verde e Amarela", which will add 1.4 million homes. In São Paulo, the 16km Line 6 metro rail is a major infrastructure development that will impact housing affordability.
Office vacancy rates increased strongly during the pandemic and whilst uptake of office space is improving, it will take some time before commercial vacancy rates reach a low enough level to drive additional investment. Commercial fit-out is doing well in some regions where business sees opportunities to relocate to new premises to take advantage of the changing economics.
Progress of the environmental agenda
Despite having a regional target of 70 percent renewable energy by 2030, the pandemic has delayed the progress of the environmental agenda in some markets. Brazil has the highest amount of wind and solar power growth (International Renewable Energy Agency) adding 3.27 GW, a 45 percent increase of solar in 2020 and 1.76GW, a 10 percent increase, in wind power.
Chile is also adding solar and wind installations and increasing its use of battery technologies. Chile has the largest number of electric buses on the continent; however, other countries are also adopting policies to electrify the public transport network to reduce pollution. Brazil generates 58 percent of its electricity from hydropower, but there are moves to reduce its dependence on this source, as climate change is affecting rainfall patterns. Brazil has traditionally been a major producer of biofuels, mostly from sugar cane production. In 2021, the Renovabio programme was established to incentivise and finance the use of biofuels.
Future outlook
With the worst of the pandemic over, the countries of South America saw rapid recovery which is now slowing down. The outlook for 2022 is cautious. The IMF is forecasting that growth will slow to 2.5 percent in 2022.
Falling wages during the pandemic, unemployment at 10.5 percent and high inflation are likely to constrain consumer demand in Brazil during 2022. It is a similar story in Colombia, where elevated unemployment is likely to hamper growth in 2022. In Chile, there has been some recent wage growth, but prices are rising strongly there too especially in the producer areas and this is likely to add to construction costs, threatening viability of some projects. Argentina remains a region where the population has become used to high inflation. There, contractors are seeing increases in the number of construction projects starting in 2022.
Some of the factors driving inflation across South America are likely to ease by 2023, including lower energy prices and lower building materials costs as supply chains recover. This is likely to be a pre-condition to further growth later in the decade.
Current tendering condition
Future market outlook
“Construction costs are increasing strongly with most regions indicating tender price increases approaching or meeting double-digit levels. Business confidence is mostly positive, buoyed by the recovery in late 2021, but increasingly frustrated by supply chain disruptions and high inflation. ”
Gareth Whisson, Country Manager
Construction market
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Top three regional
construction challenges
of respondents said that political instability had a significant or high impact on the delivery of construction projects
of respondents said that market uncertainty had a significant or high impact on the delivery of construction projects
of respondents said that the lack of confidence in the market to invest in new projects had a significant or high impact on the delivery of construction projects
Regional construction
cost performance
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