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Mining construction work decline to weigh on major project activity

30 October, 2013

With mining-related construction investment easing from peak levels, Australia's leading construction firms are anticipating the value of total construction activity will fall in real terms over the next couple of years, the Australian Industry Group (AiGroup) have said in a recent statement.

The latest Ai Group/Australian Constructors Association Construction Outlook survey reveals after solid growth of 10.6 per cent p.a. in 2012/13, the total value of engineering and commercial construction work is expected to rise by just 2.0 per cent p.a. in 2013/14 and by 1.0 per cent p.a. in 2014/15 in nominal terms — representing a fall in real terms.

Growth in the value of engineering construction work is set to significantly drop from 12.9 per cent in 2012/13 to 1.9 per cent p.a. in 2013/14 before stabilising in 2014/15. This reflects weaker conditions across a range of infrastructure categories and resource-based heavy industrial sectors.

Telecommunications work is however forecast to remain robust in line with the NBN roll-out and related investment.

Levels of construction activity are also expected to hold up reasonably well in the oil and gas sector — despite a slower growth outlook — while civil projects, such as terminals and ports, are expected to still generate solid work in 2013/14 before weakening the following year.

Prospects for commercial construction remain subdued consistent with the soft and patchy nature of project activity within the sector. The survey points to growth in commercial work of 1.0 per cent p.a. in 2013/14 followed by a mild pick-up in 2014/15 with growth of 4.4 per cent p.a. anticipated.

"The Ai Group/Australian Constructors Association Construction Outlook Report highlights a central question facing the Australian economy: what will drive economic growth and increased living standards as mining investment eases?," Innes Willox, Australian Industry Group chief executive, said.

"While some areas of engineering and commercial construction — notably telecommunications work and construction related to oil and gas projects — are expected to expand, these bright spots are not anticipated to compensate for the reduction in mining work over the next couple of years.

"With the flat outlook for other key parts of the economy on the back of weak non-mining investment in recent years; the dampening impacts of a strong domestic currency; and a legacy of an extended period of low productivity growth, there is no hiding from the extent of the challenges to be faced over the next couple of years."

"The projected drop in the value of work highlights the need for public and private sector clients to engage with the industry to identify more effective strategies to support greater reliability of the construction pipeline," Lindsay Le Compte, Australian Constructors Association (ACA) executive director, said.   

"Issues such as the financing of projects, the cost of construction — including the cost of tendering — and how projects are incorporated within an overall sustainability framework, are important discussions that need to occur."

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