Latin America Biannual Construction Market Report 1Q/2Q 2024
Other factors
Gross domestic product (GDP) and consumer price index
Data from the Institute of Statistics and Informatics (INEI) shows that March saw a reversal in Peru’s GDP, with a decrease of 0.28% from the same month last year. This fall follows growth of 1.50% and 3.04% in January and February, respectively, resulting in economic activity growing by 1.38% in 1Q 2024.
The recent contraction is due to falls in construction and manufacturing and fewer working days due to the Easter holidays. The construction sector registered a drop of 2.48% in March, while manufacturing fell 9.63%.
Lower domestic cement consumption (-7%) evidenced the fall in construction with less activity in private works. Conversely, public works progressed by 11.39% via risk prevention and road infrastructure projects.
Both the construction and manufacturing sectors represented more than 21% of GDP in the month. However, on a quarterly basis, construction grew 5.12% in 1Q 2024, while manufacturing contracted 6.14% in the same period.
While the market consensus is for annual growth of between 2.3% and 2.4% for 2024, Banco de Crédito del Perú (BCP) — the country’s largest bank — recently showed more optimism, upping its forecast from 2.5% to 3%.
According to INEI data, the CPI of the Lima Metropolitan area reduced by 0.05% in April. Without considering food and energy (underlying inflation), the increase totals 0.11%.
An accumulated variation of the first four months of the year totalled 1.54% and in the last 12 months (May 2023–April 2024) reached 2.42%.
Consequently, the Central Reserve Bank of Peru cut its benchmark interest rate in May by 25 basis points to 5.75% as inflation fell to the bank’s target rate of 2%.
Impacts from localised conflicts
Two-thirds of respondents say their projects experienced disruption from localised conflicts in the last six months.
Political instability and social unrest hamper development and business confidence, as acknowledged by the United Nations' 2030 Agenda for Sustainable Development, which states, "There can be no sustainable development without peace and no peace without sustainable development".
Indeed, over the past year, political turmoil in Peru appears to have dented the economy, with many firms grinding to a halt during protests. Logistically, protests have an impact with, for instance, roadblocks previously leading to delays on the Pan-American Highway.
Political focus
Only 3% of survey respondents feel that the latest government announcements of cabinet changes will positively impact the construction industry, with 40% thinking they will have a negative impact.
Over 60% of survey respondents feel that private infrastructure decisions are on hold until the next presidential election.
Looking ahead to what the focus should be for the next government to improve the construction industry, the majority of respondents, 90%, said using standard contracts in public works.
Indeed, in supporting comments, respondents allude to disputes and claims on contract works arising from poor contract administration or a lack of FIDIC and NEC experience.
Incentivising private intervention in public infrastructure also features highly with 70% of respondents. Initiatives such as the Works for Taxes programme (Oxl) — where entities can finance public infrastructure projects instead of making tax payments — continue to improve local infrastructure and services.
The Private Investment Promotion Agency (ProInversion) has already surpassed last year’s total of US$2.3 billion worth of projects with two road and port deals totalling US$3.805 billion. It is expected that ProInversion will award a further 26 projects under the Public Private Partnership (PPP) and Projects in Assets this year, owing to an investment of US$8 billion.
