According to industry analyst and economic forecaster, BIS Shrapnel , Civil construction activity is set to decline 6% during 2010/11 despite the recent commencement of large transport, water and resources projects. This decrease is predicted to drive a down turn in total construction activity through the year, despite a pick-up in residential building.
BIS Shrapnel’s most recent civil report, Engineering Construction in Australia, 2009/10 – 2023/24 reveals a fall in work done will be apparent across most civil segments as the current round of projects are completed and there are fewer projects ready to take their place.
Adrian Hart, Senior Manager for BIS Shrapnel’s Infrastructure and Mining Unit explains, “While civil construction will remain at very high levels, a setback in work done will be hard to avoid in 2010/11,”
“Even given a ramping up of work on various projects, there will still be negative growth for the sector,” says Hart. “The decline can be attributed to a double-whammy of a general decline in commencements which occurred through much of 2009, with the notable exception of the Gorgon LNG project, and a likely easing in public sector infrastructure stimulus projects.”
Civil construction, as measured by the Australia Bureau of Statistics (ABS) Engineering Construction series, still grew 15% in real terms (or $10 billion in 2007/08 prices) through calendar year 2009 despite the impact of the global financial crisis from late 2008.
This growth was achieved through the strong pipeline of work already established by the private sector, particularly in the mining and heavy industry, electricity and roads sectors, prior to the GFC. This was as well as continued strong growth in public sector funded work after a period of under-investment through the 1990s and the first half of the 2000s.
Growth in civil work was weaker during the second half of calendar year 2009, with recent data released by the ABS illustrating that real engineering construction actually declined 4% in the December quarter in seasonally adjusted terms, albeit from very high levels.
“Through 2009, the momentum and drivers of engineering construction activity shifted substantially,” says Hart. “Very strong growth in private sector funded work has given way to uneven growth as existing projects move to completion while new projects have been delayed.
“However, growth in public sector funded work has remained strong as State and Federal Governments have more or less remained committed to their pre-GFC infrastructure plans. Until now, this has helped keep overall infrastructure construction on an upward path.”
BIS Shrapnel expects that real growth in civil construction activity will slow to around 9% through financial year 2009/10, with activity declining over 2010/11, before the next upswing gets underway. The forecasting company explains that the next cycle in engineering construction work is expected to be a strong one, lasting for several years and peaking in the second half of the decade, with private investment in energy and resources projects being one of the key drivers, along with new public investment in freight and passenger rail, and telecommunications.
However, Hart cautions about calling the next cycle a new engineering construction ‘boom’.
“It is unlikely that growth in engineering construction activity over the next decade will be anywhere near as strong as the last five years, which saw work done more than double,” says Hart. “The 2000s boom absorbed a lot of excess capacity and, despite the GFC, the constraints created by this boom have not really left. Skills shortages are likely to affect plans for major expansions in mining, rail and marine work, where specialist skills are required. Rising construction costs through the middle of the decade are also expected to have a dampening impact on activity.
“Furthermore, while most sectors will be experiencing higher real levels of activity five years from now, there are some notable exceptions. We are forecasting that real annual construction activity in roads, bridges and water will be lower in 2013/14 than in 2008/09. To a large degree, this is a reflection of the tremendously strong levels of activity taking place in these sectors right now, but also reflects a likely change in priorities for investment through the next five years.”
Engineering construction forecasts by state are available from BIS Shrapnel
