The $30 billion glass ceiling
Published October 22nd, 2009
With four months left to go before the deadline for contracting projects under the American Recovery and Reinvestment Act, less than 10% of the funds earmarked for water and wastewater projects have been allocated. This is in line with industry reports that so far the impact of the stimulus has been to stall expenditure rather than to let it flow.
This was an impact which we had anticipated in our US market report earlier this year, which suggested that total municipal capex would fall by 12.9% in the current year. The situation on the industrial water side appears to have been very much worse, with capex in microelectronics down 50% anecdotally, pulp and paper down 40%, and power down 15%. The only bright spot seems to be oil and gas, where demand for the water systems that help increase the productivity of marginal fields or treat produce water continues to grow. In all, this is a steeper decline than we forecast earlier this year, as is the decline in the industrial water treatment chemicals business, which appears to be 15% - 20% off this year.
Looking forward to next year, the industrial market will undoubtedly bounce back, but we stick with our forecast that it will not be until 2011 that capital expenditure on industrial water systems exceeds the $2.3 billion achieved in 2008. The situation on the municipal side is more problematic. A burst of ARRA-related expenditure in the first half may ensure that municipal capex meets our 6% growth forecast for 2010, but beyond that, the prospects still look bleak. State and municipal finances are continuing to deteriorate, and there is no sign of the federal government committing to financing municipal water infrastructure in the long term. Our municipal water and wastewater forecast currently suggests total capex of $30.5 billion in 2010 (up from $26.8 billion in 2009 and $29.0 billion in 2008). At this stage, it does not look as if municipal water and wastewater capex is ever going to top $30 billion per year. That is unless private finance starts to play a much bigger role in the face of failing public finances.