In focus South America

General economic overview

The economic recovery in South America has been marked by rising inflation with prices increasing by 8.3 percent on average. Food, energy, higher import costs as a result of supply disruptions, exchange rate fluctuations, and a shift in consumer demand for retail goods are all contributing to the increase in prices.

Higher wages and indexation contracts are also pushing up prices further. Interest rates are now being increased across the region to curb inflation. Brazil now has interest rates of 13.75 percent, some of the highest in the world.

Construction sector performance

Construction costs are increasing strongly with most regions indicating tender price increases approaching or meeting double-digit levels. Business confidence is mostly positive, buoyed by the recovery in late 2021, but increasingly frustrated by supply chain disruptions and high inflation.

Construction programmes are taking longer and lead times for materials are increasing. Strategies to get around supply shortages include early procurement, near-shoring manufacturing and more use of charter air freight to obtain vital components and materials. In contrast to the labour shortfall being seen in construction in other regions, construction labour is generally available.

Progress of the environmental agenda

Despite having a regional target of 70 percent renewable energy by 2030, the pandemic has delayed the progress of the environmental agenda in some markets. Brazil has the highest amount of wind and solar power growth (International Renewable Energy Agency) adding 3.27 GW, a 45 percent increase of solar in 2020 and 1.76GW, a 10 percent increase, in wind power.

Chile is also adding solar and wind installations and increasing its use of battery technologies. Chile has the largest number of electric buses on the continent; however, other countries are also adopting policies to electrify the public transport network to reduce pollution. Brazil generates 58 percent of its electricity from hydropower, but there are moves to reduce its dependence on this source, as climate change is affecting rainfall patterns. Brazil has traditionally been a major producer of biofuels, mostly from sugar cane production. In 2021, the Renovabio programme was established to incentivise and finance the use of biofuels.

Future outlook

Argentina remains a region where the population has become used to high inflation. There, contractors are seeing increases in the number of construction projects starting in 2022.

Some of the factors driving inflation across South America are likely to ease by 2023, including lower energy prices and lower building materials costs as supply chains recover. This is likely to be a pre-condition to further growth later in the decade.