December 20, 2019 / 5:27 PM / a month ago

Battered Mexican construction sector hopes to exit slump in 2020

MEXICO CITY (Reuters) - Major infrastructure projects recently announced by Mexico’s government and the private sector could next year pull the construction industry out of a protracted slump, though the boost to the economy is unlikely to be significant.

Representing some 7.5% of total economic output, construction has contracted for 16 consecutive months, dragging down the economy which has stagnated this year.

If projects held up in the first year of the administration of President Andres Manuel Lopez Obrador start to take shape, construction output could grow by between 1% and 1.5% next year, said Eduardo Ramirez, president of industry association CMIC.

“The key thing is getting more private sector investment,” he told Reuters. “If we manage that, the coming year could be very good, and we can start reversing the numbers from 2019.”

Lopez Obrador, a leftist who took office in December 2018, has unsettled investors with some of his decisions, especially his cancellation of a partly built $13 billion Mexico City airport five weeks before he assumed the presidency.

Ever since he was elected in July of last year, construction output has declined, according to official data.

That set off the longest slump in the industry since the summer of 2014, prompting major companies such as cement maker Cemex to lower sales forecasts for this year.

Employment in the industry declined by 3.8% in the ten months through October, according to statistics agency INEGI.

So sharp was the slump that Mexican building firms Maquiobras and Construarba at one point had laid off about 90% of their staff in 2019, before business picked up in the second half, said Gustavo Arballo, chief executive of the companies.

Slowdowns are not unusual with a change of government in Mexico, and executives and analysts say the arrival of Lopez Obrador’s new administration has put the brakes on the industry.

Still, late last month, the government announced the first phase of an ambitious infrastructure plan underwritten by the private sector worth some 859 billion pesos ($45 billion).

Public spending looks set to remain muted.

According to the CMIC, which represents around 12,000 building firms, as of September, only 31% of the budget had been spent for the 12 ministries and state-run companies that have traditionally dominated public sector construction.

The industry has pushed for bigger outlays on infrastructure next year, but the budget for the 12 entities in 2020 is 8.6% lower than the sum first approved for this year, the CMIC said.

Lopez Obrador has pledged to build a cheaper airport instead of the project canceled last year, as well as a new oil refinery in southern Mexico and a railway line connecting the tourist attractions of the Yucatan peninsula known as the Mayan Train.

Beyond that, few major projects have yet to appear.

“The main problem is that (the government) only has the refinery, the airport, the Mayan Train and some things with (state oil company) Pemex,” said Jose Luis de la Cruz, director general of Mexico City-based economic think tank IDIC.

Reporting by Sharay Angulo; Editing by Dave Graham

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