Only a modest construction rebound in 2021 and in 2022
The economic downturn caused by the coronavirus pandemic has further weakened a Mexican construction sector that had already been performing poorly in 2019. After a 17.7% contraction in 2020, Mexican construction output is forecast to rebound only 11% in 2021, and to grow about 3% in 2022. Residential construction demand is impacted by a high unemployment rate, leading to project delays. Recovery of industrial and commercial building remains slow following a severe 8.5% contraction in Mexico´s GDP in 2020, while civil engineering has suffered from low public investment over the past three years.
Margins of construction businesses have deteriorated over the past twelve months, due to increased prices for construction materials like aluminium, cement, copper, steel, and insulation materials. That said, Mexican banks have continued to offer loans and payment extensions to construction businesses at competitive rates, as the financial services sector remained generally resilient during the economic crisis. Mexican construction companies usually require bridge loans or replacement loans from banks.
Payments in the Mexican construction industry take about 60 days on average. The number of protracted payments has been high in 2019 and in 2020. Requests for payment extensions are common within the industry, as businesses depend on work in progress and recovery of their accounts receivables. It is quite usual for construction customers to pay slowly, in particular in the public infrastructure segment. Due to the unsubstantial recovery in short-term demand and the ongoing elevated level of payment delays our sector assessment is “Poor”, and our underwriting stance remains rather restrictive across all subsectors.