Infra Spending In Emerging Markets

Merrill Lynch & Co. has raised its annual infrastructure-spending estimate for emerging markets by 80%, as developing countries try to keep pace with fast-growing economies and large cash reserves, BusinessWeek reported.

Investment in infrastructure, which the firm sees as the long-term solution to inflation, will rise from $1.25 trillion to $2.25 trillion annually over the next three years. And China, the Middle East, and Russia will account for 70% of infrastructure spending.

The report from Merrill Lynch pointed out that Xstrata PLC recently predicted emerging markets would spend $22 trillion on infrastructure in the next 10 years.

“That estimate is among the highest we’ve seen,” the report noted, “with an implied run rate of $6.6 trillion over the next three years.”

The report basically puts to rest the potential slowdown from emerging markets. Just looking at the demand side for building materials and commodities, we can expect prices to remain firm despite some slowdown in developed countries. One caveat though is that although the estimated infra spending in these countries have been revised higher, a lot of it is due to higher materials and related costs, rather than actual number of infra projects. Direct and indirect costs have surged by 40%-200%, so we have to take that into account as well.

Estimated Infrastructure Spending For the Next Three Years

Region	New Estimate	Previous Estimate
China	$725 Billion	$400 Billion
Middle East	$400 Billion	$225 Billion
Brazil	$225 Billion	$100 Billion
Russia	$325 Billion	$195 Billion
India	$240 Billion	$110 Billion
Turkey	$65 Billion	$50 Billion