Infrastructure growth set to ease mining decline – report
A pick-up in transport infrastructure construction, firmer commercial construction activity and continued growth in telecommunications investment in 2015 are expected to ease a decline in general non-residential construction over the next two years, according to the latest Australian Industry Group/Australian Constructors Association Construction Outlook survey report.
Echoing the results of the April Performance of Construction Index, the May Construction Outlook report has found that, after more than a decade of sustained growth, the total value of engineering and commercial construction is expected to fall by 3.6 percent per annum in 2014 and a further 1.8 percent p.a. in 2015 in nominal terms. Growth in 2013 was 7.1 percent at current prices,
Notable declines are expected in mining-related construction, heavy industrial projects and other civil projects (including ports and terminals), the report says. The total value of work will remain relatively high, however, due to the sizeable project pipeline and a number of long-dated projects.
On the other hand, turnover from commercial construction activity is expected to grow by 3.5 percent in 2015, led by 5.1 percent growth in private sector building activity.
Australian Industry Group Chief Executive Innes Willox says that, while the wind-down in mining investment will weigh heavily on the construction sector, "there are encouraging signs in the Outlook report that growth of transport and communication projects and a gradual pick-up in commercial construction will at least ease the decline in activity and help provide employment for many released from mining-related projects".
"The Federal Budget infrastructure initiatives are clearly positive," Willox adds, "and with plenty of capacity for additional projects remaining, we face a unique opportunity over the next few years to address the infrastructure backlog."
Australian Constructors Association (ACA) Executive Director Lindsay Le Compte says that, while the report is a further confirmation of the slowdown in resources sector construction, "the downturn starts with activity at historically high levels and will be moderated as a result of positive activity flowing from the Federal and state government announcements of increased investment in the infrastructure sector".
Compte adds that "now is a good time for the industry to devote some effort to re-skilling its workforce to ensure it has adequate access to appropriately trained workers as the industry lifts in various sectors over coming years".
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Below are the report’s forecasts for this year and next.
2014 construction outlook
- Total infrastructure construction is expected to turn down by 4.6 percent p.a. This reflects a drop in transport construction of 3.8 percent p.a. due to the completion of some major projects and the winding down of flood reconstruction work in Queensland. Falls are also expected in sewerage, drainage and water supply projects (-11.1 percent p.a.) while the close links of ports/terminal construction to resource investment is reflected in a 9.7 percent p.a. decline in revenue from other civil projects.
- The value of mining sector work is expected to contract by 7.7 percent p.a. as mining investment reduces from peak levels. A decline of 3.6 percent is also expected in heavy industrial resource-based construction, although work on oil and gas processing projects (+1.0 percent p.a.) is forecast be sustained at a high level underpinned by major LNG facilities still under construction.
2015 construction outlook
- The value of infrastructure work is expected to remain broadly unchanged over the year. With power and water infrastructure investment reaching the end of a long-run growth cycle, businesses anticipate falls of between 6-9 percent p.a. in both electricity generation and supply, and sewerage, drainage and water supply projects. In addition, a lower level of mining-related port projects will lead to a further decline of 10.0 percent p.a. in revenue derived from other civil projects. These falls will be cushioned by NBN network investment which is forecast to drive solid growth of 10.7 percent in telecommunications infrastructure, and growth in transport infrastructure of 8.8 percent p.a.
- Consistent with a slowing resource projects pipeline, a further decline in mining-related construction work of 12.5 percent p.a. is expected in 2015.
- A weaker outlook is also predicted for heavy industrial construction in 2015. This is largely due to a downturn in work in the oil and gas processing sector as more projects move through to completion (-13.5 percent p.a.).
- Growth is forecast in turnover from commercial construction activity of 3.5 percent p.a. with this increase led by a step-up in private sector building activity of 5.1 percent p.a.
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