The latest forecasts from the Australian Construction Industry Forum (ACIF) have shown that nation-wide construction expenditure is set to remain at levels much higher than the historical average, despite the inevitable decline in engineering construction activity in the medium term.
The ACIF’s Australian Construction Market Report gives forecasts out to 10 years for 20 asset types across three state and territory markets – residential and non-residential buildings, as well as engineering construction.
Peter Barda, the executive director of ACIF, notes that there have been a number of developments in the global and domestic macroeconomic outlook since the release of ACIF’s May 2014 Construction Market report.
“Global economic growth has been revised downwards following lower than expected growth in the first half of 2014. Australia’s economic growth of 2.5 per cent in 2013-14 was generally in par with what we had foreshadowed six months ago,” says Barda.
“However, a sluggish recovery in Europe and a strong domestic currency means that interest rate rises are likely to be deferred to encourage consumption spending until at least the end of 2014-15 – a later date than thought earlier in the year.”
The report notes that New South Wales has had a strong growth over the past six months, and is predicted to overtake Queensland as the most construction spending state by 2016-17. This will come from an expected strong residential sector spending, whilst engineering construction will continue to decline in Queensland, leading to this shift in spending profile.
Barda adds that construction activity in Victoria and Western Australia is already showing signs of subdued activity, as foreshadowed in the May forecast.
Residential sector boom
Although total spending in 2013-14 reached $233 billion, which is slightly below what was foreshadowed, the outlook for 2014-15 remains essentially unchanged at $28 billion. However, the forecast expects some shifts in the mix of construction work, particularly in the residential sector.
According to the report, residential building is already spending to meet a backlog of pent up demand – a result of historically low interest rates and increased foreign demand. This is expected to lift total spending by nearly 17 per cent to just under $90 billion by 2017-18, from $75 billion in 2013-2014.
Non-residential spending rose slightly in 2013-2014 to $33.6 billion from $35.2 billion the year before.
The report also notes that spending in engineering construction peaked in 2012-13 at $128 billion, falling to $123 billion in 2013-14. Over the next few years, activity in this sector will wane to around $92.5 billion by 2017-18. This is attributed to the slowdown in mining construction, which will affect related sectors such as bridges, railways and harbours, and electricity and pipelines.
Western Australia, Queensland and the Northern Territory will feel the most of these effects, although a key bright spot in the outlook is roads spending, which could see growth over the projection period.
ACIF Forecasts are published twice a year in May and December.