Home > 12-year engineering construction boom over: BIS Shrapnel

12-year engineering construction boom over: BIS Shrapnel

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Leading industry analyst and economic forecaster, BIS Shrapnel reports the end of the 12-year boom in engineering construction activity stretching back to 2001.

According to its new civil construction report, Engineering Construction in Australia 2012/13 – 2026/27, BIS Shrapnel says civil work done will rise around 11% over 2012/13 to $128 billion. However, aggregate activity is then expected to slip 5.4% in 2013/14 – the first decline since 2000/01 – and will continue to fall over each of the subsequent three years. By 2016/17, activity will be 20% below the 2012/13 peak.

According to Adrian Hart, Senior Manager for BIS Shrapnel’s Infrastructure and Mining Unit, the good news is that a sharp collapse in engineering construction activity at the national level, while still a risk, is unlikely in the near term since the value of work commenced but not yet completed is still a very healthy $123 billion, which will support activity over the next 12-18 months.

He however warns that the challenge lies in avoiding a more serious shakeout after the middle of the decade, requiring the next round of projects to come through from both the public and private sectors.

According to BIS Shrapnel’s longer term projections, civil construction activity is not expected to regain 2012/13 peak levels until at least the mid-2020s.

Declining investment in mining projects and related infrastructure is a major driver of the downturn, although large LNG construction projects in Queensland, Western Australia and the Northern Territory will help keep aggregate activity very high over the next few years. Constrained public investment, even when accounting for the National Broadband Network, is also acting as a drag on activity.

The negative growth outlook for the engineering construction market means that future Australian economic growth, demand and employment now hinge on a recovery in housing and non-resources investment by businesses and governments.

Hart observed that the boom in investment in civil infrastructure over the past decade was driven initially by the infrastructure needs of new housing in the early 2000s, followed by public and privately funded economic infrastructure and, finally, a massive wave of resources investment, supporting growth in domestic demand and jobs for more than a decade as well as adding to productive capacity.

He also notes that the decline in civil construction work may itself provide room for further interest rate cuts and be a catalyst for long needed investment in other sectors of the economy, particularly housing.

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