Weakening outlook for Australian construction

Following a sustained period of solid growth, Australia's leading construction companies are forecasting a marked slowdown in the rate of activity growth in 2009, followed by a decline in 2010, according to the latest Australian Industry Group/Australian Constructors Association Construction Outlook survey.

The survey shows that after rising +9.9% in 2008 (at current prices), the value of engineering and commercial construction work is expected to fall to a +2.3% growth rate in 2009.

A further fall of +2.4% is expected in 2010, said the report, driven by a reduction in investment in the resources sector, a decline in mining related infrastructure projects, and weaker private sector commercial building activity.

Despite this, added the report, the total value of construction work done by the private sector is expected to remain at a high level overall, with a forecast value of AU$ 91.2 billion (US$ 68.9 billion) in 2010.

This is +20.8% above 2007's level and represents an "almost 4-fold increase on the previous low point of 2001," said the report.

Commenting on the report, Australian Constructors Association (ACA) president, Wal King, said, "The significant slowdown in construction growth during 2009 and the contraction forecast for 2010 will place "significant pressures" on companies already facing intense competition for available work and tighter profit margins.

"Nevertheless," said Mr King, "there are still significant projects either underway or in the pipeline which should help to prevent a more substantial decline during 2010. Moreover, the Federal and State Government's infrastructure plans, the Building Australia Fund and the fast tracking of funds directed at infrastructure from the Education Investment Fund and the Health and Hospital Fund are expected to continue to stimulate construction opportunities."

Australian Industry (Ai) Group Chief Executive Heather Ridout added that the survey confirms the weakening outlook for Australia's engineering and commercial building industry as "activity continues to be undermined by investment funding constraints, weak business confidence and the downturn in global demand."

Ms Ridout added that, "The survey highlights the importance of the Federal Government's stimulus package. The significant public sector spend is expected to provide an important bridge for the industry until we see some bounce in private sector investment. The timing of the recovery will be all important as work-in-hand volumes diminish. As well, the fact that the activity does not look set to deteriorate to levels of previous downturns is encouraging.

Construction Outlook survey key findings:

• Engineering and commercial construction work is forecast to fall sharply to a +2.3% growth rate in 2009 and then fall by -2.4% in 2010.
• The most marked contractions in activity in 2010 are forecast in mining projects, heavy industrial resource based projects, and "other" civil projects (including bridges, terminals and port facilities).
• Engineering construction is, however, expected to gain support from continued growth in the oil and gas sector, transport infrastructure, electricity generation and supply and sewerage and water supply projects.
• Reflecting tight credit conditions and weak investor sentiment across the property market, private sector commercial construction is predicted to contract in 2009 and 2010 by -5.1% and -15.4% respectively.