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June 15, 2020updated 21 Mar 2022 11:41am

Brazil’s construction industry is set to contract sharply this year amid the Covid-19 pandemic

By GlobalData

GlobalData expects the construction industry in Brazil to contract by 6% this year, down significantly from the previous growth forecast of 2.2% before the coronavirus outbreak started and growth of 1.6% in 2019.

However, further downward revisions are likely as the pandemic is expected to worsen in the coming weeks, adding more pressure for longer periods of social distancing policies even though some states and cities across the country have already started to ease their quarantine restrictions despite warnings from public health experts that the worst is still to come.

Brazil has the second-highest number of confirmed coronavirus cases in the world, after the US, and the second-highest recorded Covid-19 deaths, overtaking the UK’s death toll on 12 June with 41,901 fatalities.

The country continues to struggle to contain the rate of infections as the number of new cases and deaths continue to accelerate throughout the country while hospital occupancy rates remain elevated, surpassing 90% in some states. Hospital capacity in São Paulo, Brazil’s biggest city, is close to collapse. On 5 June, Brazil recorded the highest jump of coronavirus cases in 24 hours, registering 35,176 new cases while the number of daily deaths reached 1,099.

Like other Latin American countries, Brazil is exposed to commodity price declines, and the impact of the coronavirus outbreak in other major trading markets is expected to hit the country’s economy severely especially in the first half of the year. Sectors such as trade, manufacturing, and construction are expected to be severely affected.

According to the World Bank, Brazil’s economy is expected to shrink by 8% in 2020, and slowly recover to 2.2% in 2021.

The Continuous National Household Sample Survey carried out by the the Brazilian Institute of Geography and Statistics (IBGE) showed that during the February-April quarter, Brazil lost 4.9 million formal and informal jobs, with the construction sector alone losing nearly 885,000 occupations during the same period.

While all construction activities have been allowed to carry on since the start of the pandemic, the sector registered a quarter-on-quarter decline of 6.7% in the first quarter of 2020 and a year-on-year contraction of 1% in the same period, according to the IBGE. This brought the sector near to the level of activity recorded at the start of 2008.

The performance in the second quarter of the year is expected to be much worse, since the outbreak and the quarantine measures only gained steam in the second half of March. Nonetheless, the impact in the first quarter was mainly reflected by the halt in activity of the informal sector as the vast majority of formal construction companies in the country continued to operate.

In 2019, the construction sector accounted for 3.2% of the country’s GDP and over 5% of formal employment. The sector underwent a weak recovery last year after twenty consecutive year-on-year quarter of declines. However, amid the economic crisis caused by Covid-19, the sector’s contribution to the economy is expected to be much lower in 2020.

The Construction Industry Survey published on 22 May by the National Confederation of Industry (CNI) with support from the Brazilian Chamber of Construction Industry (CBIC) showed that the utilisation of the operational capacity of the construction industry was 50% in April, the lowest level in the history of the series, and signalling that the general activity of the sector will remain sluggish as long as the social distancing measures remain in place.

The Construction Industry Survey also showed that the Construction Activity Index fell to 29.4 points in April, the second lowest value in the history of the series, and below the value observed in March while the Construction Employment Index fell to 24.1 points, the third lowest on record, and surpassing only the records of December 2015 and January 2016. The indices vary between 0 and 100 and any value below 50 is negative.

GlobalData’s current forecasts foresees that construction output in Brazil will not return to 2019 levels until 2023 even if the government tries to push ahead with infrastructure spending plans and programmes to meet the country’s increasing demand for housing. Brazil’s widening fiscal deficits and rising debt burdens in the face of weakening economic activity will keep both private and foreign investment low while leaving no space in the budget for investing in public works.

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