Construction activity has maintained its production cycle, constant and sustainable, and although it contracted in the first months of 2024, a recovery is expected for the second half of the year, according to a report by the Construction Statistics Commission, attached to the Guatemalan Chamber of Construction (CGC) revealed last Monday.
The analysis shows the performance of macroeconomic variables and shows that the construction sector is expected to grow by 2.1% in the current year, driven by new infrastructure projects and an increase in private investment.
However, they warn that there are challenges in the increase in the costs of materials and exogenous variables that may impact the activity. In addition, they point out that the change of ministerial authorities could alter the licensing procedures during the first months of management.
In the first quarter of 2024, construction activity fell by -1.3%, according to the official report from the central bank released at the beginning of the month.
More confidence
The document provides a reading of some measurable indicators observed in the first half of the year, such as the inflation rate, the sending of family remittances, bank credit to the private sector, and provides a closing view of the activity.
For example, the construction activity confidence index is 82.50 points or higher, which shows an improvement of 1.79 points in expectations in the sector compared to the previous month, and which is equivalent to a variation of 2.22%.
The indicator is designed to measure the perception of the economy and the business climate of builders, which is why it shows stability since last February, as well as less volatility in its behavior.
The analysis reiterates that the index is at a high level, reflecting, above all, the optimism held by businessmen regarding the fact that conditions in the sector will improve during the rest of the year.
Licenses
The report indicates that as of April of this year, there is a record of 1,065 authorized construction licenses, and clarifies that in the last 10 years the number of authorized licenses has shown a downward trend, which is a reflection of a change in the tastes and preferences of demand, as well as an adaptation of supply to the new dynamics of the market.
In this regard, it is exemplified that in the past three licenses were issued to build a shopping center, a multi-family housing complex and a hospital building, but in the current dynamics, the combination of these structures has evolved to include in a single license, especially in vertical or multi-family housing projects.
Type of building
Regarding the analysis of square meters of construction by type of project, the report details that, until last April, square meters of construction continue to be predominant in commercial projects. However, when combining multi-family housing (buildings) and mass projects (houses), these exceed the commercial area.
It is reiterated that there is a considerable potential market for industrial development and multi-family housing. “Monitoring these trends will be very useful for medium and long-term investment decisions,” the document notes.
As of April, the number of authorized square meters of construction shows a different trend to the authorization of construction licenses, as a result of changes in market dynamics, and there is a count of 1,126,105 square meters.
The analysis of the monthly issuance of licenses allows us to identify the months in which activity in the sector is at its most critical throughout the year. In addition, it shows the slowdown in activity attributed to the fact that the total number of licenses issued during the first four months is at the lowest levels recorded in 2020, when the health emergency due to Covid occurred.
The year-on-year variation therefore shows a cyclical behaviour of the sector and suggests that activity could reverse upwards in the following months.
Ignacio Basterrechea, director of the CGC Statistics Commission, commented on the incidents observed during the first half of the year in construction activity and highlighted that it was influenced by several factors: the stabilization of the Guatemalan economy, reflected in the GDP growth projected between 2.5% to 4.5% for this year, after the stability observed in the 2020-2022 period —when the pandemic occurred—.
He also noted that the low budget execution of the Ministry of Communications and the Ministry of Environment and Natural Resources had a negative impact on the progress of infrastructure projects.
He added that the delay in the approval of construction licenses was also a limiting factor, directly affecting the volume of authorizations and, therefore, the activity of the sector.
Improvement for the second semester
Basterrechea outlined the sector’s expectations for the end of the second half of the year, based on the information available, and stressed that moderate growth is expected in the construction sector, with a projection of 2.1% -positive- promoted by the execution of new infrastructure projects and the increase in private investment.
There will also be an improvement in the execution of the state budget, especially in the case of Micivi, which will be crucial for the implementation of projects.
On the other hand, the increase in family remittances, which, as of last May, represents 43% of what was recorded at the end of 2023, could strengthen economic activity in the province, creating opportunities for the development of new buildings.
And the stability of the construction activity confidence index suggests that employers maintain an optimistic outlook on improving conditions for the rest of the year in the activity.
In conclusion, the executive pointed out that, although the sector has faced significant challenges due to the low execution of infrastructure projects and delays in the authorization of licenses, there are positive factors that could boost its recovery and growth, these being:
- Overall economic stabilization, increased remittances and private investment, along with improved budget execution by government entities, are crucial elements that can contribute to a rebound in construction activity in the second half of the year.
- It is essential that the public sector accelerates the implementation of infrastructure projects to take advantage of this moment of growth and optimism in the private sector.
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