Railways Gaining Traction Despite Budget Constraints

Two significant announcements on railway projects in France support our medium-term optimistic outlook for the sector. Seeing slow but steady progress in these projects is a positive sign for the industry, especially in the context of France's macroeconomic outlook. Our Country Risk team is forecasting a contraction of 0.3% in real GDP growth for 2013, which is a significant impediment to any recovery in the construction sector.

However, we are more optimistic on France's railway sector and we currently forecast annual average real growth at 8.1% year-on-year (y-o-y) over our forecast period to 2022, with railways outperforming other segments. This is particularly significant as the railway sector accounts for more than 60% of France's total infrastructure industry value. Despite our view that France's broader economic performance could weigh heavily on project financing, support from the European Investment Bank (EIB) is likely to see these projects through to completion.

The first announcement refers to the approval of a EUR300mn loan from the EIB to partly finance the upgrade of the Lille metro system. Thirty years after it was opened, Lille's metro will benefit from the modernisation of its driving system in addition to the purchase of new trains and equipment. This is part of a EUR610mn project to double public transport capacity by 2020.

Railways To Drive Transport Infrastructure Growth
France Railways Industry Value (EURbn) And Real Growth %

Railways Gaining Traction Despite Budget Constraints

Two significant announcements on railway projects in France support our medium-term optimistic outlook for the sector. Seeing slow but steady progress in these projects is a positive sign for the industry, especially in the context of France's macroeconomic outlook. Our Country Risk team is forecasting a contraction of 0.3% in real GDP growth for 2013, which is a significant impediment to any recovery in the construction sector.

However, we are more optimistic on France's railway sector and we currently forecast annual average real growth at 8.1% year-on-year (y-o-y) over our forecast period to 2022, with railways outperforming other segments. This is particularly significant as the railway sector accounts for more than 60% of France's total infrastructure industry value. Despite our view that France's broader economic performance could weigh heavily on project financing, support from the European Investment Bank (EIB) is likely to see these projects through to completion.

Railways To Drive Transport Infrastructure Growth
France Railways Industry Value (EURbn) And Real Growth %

The first announcement refers to the approval of a EUR300mn loan from the EIB to partly finance the upgrade of the Lille metro system. Thirty years after it was opened, Lille's metro will benefit from the modernisation of its driving system in addition to the purchase of new trains and equipment. This is part of a EUR610mn project to double public transport capacity by 2020.

In addition, we continue to see progress with regards to the new Grand Paris Express network, with the contract for infrastructure project management awarded to Systra. This follows the announcement in July that the supervisory board of the Société du Grand Paris had authorised US$7bn in new rail funding for the French capital. The contract includes the design and construction supervision work of 21km and eight stations on the south-west section of Line 15. This is part of a wider public transport initiative comprising 200km of new lines and 72 stations designed to serve two million passengers. Construction work on the automated train line is expected to start in 2015, with completion scheduled for 2030.

The Île-de-France region surrounding Paris is the most populated in France, and subsequently the mass transit system currently comes under major daily strain and carries 8.5mn passengers. Additionally, it is estimated by the French authorities that traffic on rail system has increased by 21% over the past ten years. This outlook certainly supports the need for investment in Paris' urban mass transit infrastructure. New links to Charles de Gaulle airport and the scientific research hub of Saclay are also likely to be joined to the new orbital rail links.

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