After a decade of underperformance, the New South Wales economy is set to grow faster than the Australian economy over the next 3 years, with rising construction the key driver, according to industry analyst and economic forecaster, BIS Shrapnel.

“While construction activity is declining at the national level, within New South Wales it is picking up”, said Adrian Hart, Senior Manager for BIS Shrapnel’s Infrastructure and Mining Unit.

“The good news for New South Wales is this stronger performance is expected to be sustained through the next 4 years which will provide the state economy a welcome boost.“

According to its report, State Economic & Industry Prospects: NSW 2013 – 2023, BIS Shrapnel estimates that growth in NSW Gross State Product (GSP) accelerated to 2.9 per cent during 2012/13, up from 2.4 per cent in 2011/12.

State economic growth is forecast to accelerate further in the years ahead, achieving 3 per cent growth in 2013/14 and surpassing 3.5 per cent growth in both 2014/15 and 2015/16.

While growth in mining, finance and insurance, professional services and health sectors are important to this result, the key sector remains construction, said Hart, given its strong multiplier effects across the economy.

According to BIS Shrapnel, the key drivers of the rise in construction activity in New South Wales will be dwelling building and non-resources engineering construction.

“We are already seeing a pickup in residential building in New South Wales“, said Hart, “and this is expected to accelerate over the next two years, more than offsetting declines in mining-related construction.”

From 2014/15, BIS Shrapnel expects that this will be joined by a strong pick-up in non-resources construction in New South Wales.

“While affected by declining resources investment in the Hunter Valley, the state’s civil construction market is projected to receive a large boost from new infrastructure projects through the next 4 years, spearheaded by the $9 billion North West Rail Link, $1.6 billion Sydney Light Rail, several Pacific Highway upgrades and the $10 billion+ WestConnex road project,” said Hart.

“Overall, New South Wales is expected to see around $85 billion in non-resources civil construction work done between 2012 and 2017, compared to $55 billion for Queensland and $46 billion for Victoria.”

However, Hart warns against complacency and highlights risks in the projection.

“New South Wales still faces significant challenges if the potential boost to construction is to filter through the economy.”

“Primarily, it will be important to build up the skills in the state construction industry in a sustainable manner to handle the growing volume of work.”

“It will be important to ensure that cost growth does not get out of control as it did during the resources boom. If costs rise significantly, the recovery in building activity, or the timing of signature infrastructure projects could be put at risk,” concluded Hart.