The surging public infrastructure investment has been a key driver of growth and employment in the national economy, according to a new report by leading construction industry analyst and economic forecaster, BIS Oxford Economics.
The civil construction report, Engineering Construction in Australia 2018 – 2032 reveals that total measured work done in Australia’s largest building and construction sub-sector is on track to rise 10 per cent to $96 billion in 2017/18; this is attributed to higher public infrastructure investment as well as a renewed burst of LNG activity.
Adrian Hart, associate director of Construction, Maintenance and Mining at BIS Oxford Economics, said that publicly-funded engineering construction rose 12 per cent (+$4.5 billion) in calendar 2017 with 2018/19 activity to be 40 percent higher than the trough in 2014/15.
The higher public infrastructure investment – thanks to several new projects across transport as well as the rollout of the NBN – has helped offset the drag from the bust in resources investment.
However, despite the infrastructure-focussed 2018-19 Federal Budget, the public investment ‘wave’ is close to peaking, which means the Australian economy will require new drivers to support growth in employment and incomes into the future.
As publicly-funded works peak and privately-funded works slump in line with contracting oil and gas activity, the measured engineering construction activity will fall back sharply in 2018/19.
Hart, who authored the report, cautions against calling this a bust in the engineering construction market. Excluding oil and gas construction, the engineering construction market will be sustained at a high level in historical terms with the sector averaging $71 billion per annum over the next five years.
According to BIS Oxford Economics, this sustained level of engineering construction work will continue to bring a host of challenges to the industry and to procuring government agencies.
An report prepared by BIS Oxford Economics for Infrastructure NSW highlights a range of capacity and capability risks affecting key inputs to the construction industry, including having sufficient ‘onsite’ skills, securing access to local construction materials, having the right procurement and risk-allocation strategies by governments, and dealing with transport and logistical issues.
Outlook by state
Indicating the shift in Australia’s investment drivers, New South Wales is expected to surpass Western Australia as the country’s largest engineering construction market in 2018/19. New South Wales and Victoria will continue to perform well, while activity is picking up in Queensland and South Australia.
Much of the decline from 2018/19 in Western Australia comes from the completion of import-intensive LNG projects. Outside of oil and gas construction, engineering construction activity in Western Australia is forecast to rise from around $9.7 billion in 2017/18 to about $11-12 billion per annum over the subsequent four years.
Outlook by engineering construction sector
The main sectoral winners in the engineering construction market are railways, roads and water supply and storage, supported by sustained high levels of public investment. Renewable energy investment is also expected to see higher average levels of electricity-related construction, although the uncertainty over the future energy policy presents a risk over the long-term.
Mining investment may see a mild recovery, triggered by stronger global growth and higher commodity prices, leading to higher levels of (non-oil and gas) mining and heavy industry construction (MHIC).
The completion of the $200-billion phase of LNG construction (impacting oil and gas work) and the winding down of work on the NBN (affecting telecommunications) remain major challenges facing the engineering construction market.