According to economic forecaster BIS Shrapnel, a decline in mining investment is driving the downturn in construction, predicting there will be a 20 per cent drop in work over the next four years.
The Engineering Construction in Australia 2012-13 – 2026-27 report covers the outlook for the civil engineering construction sector in Australia spanning 12 sub-sectors of activity. These include roads, bridges, railways, harbours, water, sewerage, electricity, telecommunications, recreation, pipelines, mining and heavy industry, and other engineering construction.
The report found an 11 per cent rise in civil work in 2012-13 to $128 billion would be followed by a fall of 5.4 per cent in 2013-14. This would be the first decline since 2000-01 and the market would continue to fall over each subsequent year.
The shelving of several large mining projects, caused in part by a slowdown in the resource-hungry Chinese economy since mid-2012, has driven the decline in resources-related construction.
Peak level construction falls
BIS Shrapnel estimated that resources-related engineering construction activity would fall nearly 30 per cent from around $78 billion in work done during 2012-13 to around $56 billion by 2016-17. However, this was still above the $39 billion in resources-related work estimated to have been done in 2010-11.
It?s not doom and gloom for all resource industry sectors. Large LNG projects, like those in Central Queensland, will continue to grow in 2013-14 and remain at near record levels mid-decade.
Adrian Hart, the senior manager for BIS Shrapnel’s infrastructure and mining unit, said civil construction activity was not expected to regain its 2012-13 peak levels until at least the mid-2020s.
Hart said the overall construction downturn could open the door for further interest rate cuts and lead to long-needed investment in other sectors of the economy, primarily housing.
He said it was time for non-resources sectors to “step up”, saying Australia’s future economic growth would hinge on its recovery.
New South Wales is tipped to lead the recovery, with $85 billion in non-resources civil construction work to be done over the next five years, compared with $55 billion for Queensland and $46 billion for Victoria. Queensland will experience the largest decline in civil work over the next four years, with a forecast drop of nearly 40 per cent ($15 billion) by 2016-17.
NSW’s civil construction market is projected to receive a large boost from new infrastructure projects throughout the next five years, spearheaded by the $9 billion North West Rail Link, the $1.6 billion Sydney Light Rail, several Pacific Highway upgrades and, later, the $10 billion WestConnex road project.
Sources: Daily Mercury, BIS Shrapnel, The Australian