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AMLO budget seen as insufficient to revive construction sector

by Yucatan Times
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The spending part of the 2020 budget that the Mexican government recently sent to congress signals a lack of a countercyclical policy to help the construction sector recover from its ongoing slump.

This is the view of José Luis De la Cruz, general director of IDIC, a local think tank that focuses on the industrial sector.

“One of the most problematic aspects of the proposal is the significant cuts made to the budgets of the transport and communications ministry, and the environment ministry – which includes water infrastructure projects – in the face of the three consecutive quarters of negative results that the construction sector has been experiencing,” De la Cruz told BNamericas.

When asked if the national infrastructure program (PNI), which the government is expected to unveil within the next few weeks, could compensate the lack of opportunities to boost private investment in the construction sector, De la Cruz said that any effects the program could create would only be seen in the medium and long-term.

“The point is that for 2020 [the investment opportunities] are the ones outlined in the spending budget. In the best-case scenario, the program could have some influence starting in 2021…The only possible contingency strategy left to implement [for next year] could be one that is pushed by the development banking sector, as the use of funds by state-owned development banks does not need to be included in the spending budget,” he said.

Regarding this last possibility, De la Cruz said that the economic stimulus package unveiled by the finance ministry at the end of July – which includes an infrastructure component related to the execution of projects funded by national infrastructure fund Fonadin – would not be enough to stimulate infrastructure investment.

“What we have observed this year is a reduction in public infrastructure investment, with a further decrease expected for 2020. What the country would need is a package pushed by the development banks to compensate what has not been done in 2019, and what it is expected that the 2020 spending budget will not cover…Infrastructure investment via development banks would have to be higher than what was announced in that program.”

De la Cruz also said that the decision to concentrate the majority of public spending in a handful of infrastructure mega projects is consistent with President Andrés Manuel López Obrador’s stated instruction that his government will not left a plethora of unfinished projects by the end of his six-year term like the administrations that preceded him.

However, the mega projects launched by AMLO are not enough to reactivate the domestic economy nor to create a comprehensive regional development strategy that goes beyond the south-southeast area of the country, according to De la Cruz.

“In the context of a lack of programs helping to boost private investment that can compensate what the government will stop funding, the 2020 spending budget proposal will not promote economic growth.”

Although the situation will depend on the construction sector’s performance in the last few months of this year, De la Cruz’s sector outlook for 2020 is not a positive one if the spending budget proposal ends up being approved without changes – and if no additional complementary measures are implemented.

“The construction sector could contract 3-4% next year, depending on the closing of this year, given that the trend continues to be a negative one,” he said.

A shrinking sector

The Mexican construction sector has been experiencing a trend of several months without growth over the past year.

The construction sector’s contribution to Mexican industrial output contracted 9.1% year-on-year in July and it represented the largest decline of all the sectors that contribute to industrial output, according to the monthly figures published by statistics agency Inegi.

With growth of 1.2%, industrial manufacturing was the only sector that reported a positive performance in July.

Month-on-month, the construction sector’s decline was 1.4%.

The negative trend in the sector has not only affected actual construction work but also the specialized works performed for construction activities.

The Yucatan Times Newsroom with information from BNAmericas

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