Construction Leaders Bullish About 2014

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Wednesday, February 5th, 2014
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Amid a rebound in new housing starts, leaders within Australia’s building and construction industry are upbeat about the sector’s prospects for 2014, the latest survey has found.

In its annual Business Prospects report, the Australian Industry Group (Ai Group) surveyed 241 chief executives across a range of sectors within the Australian economy.

According to the survey’s findings, 30 per cent of respondents from the construction industry expect business conditions to lift this year (against 20 per cent who expect conditions to deteriorate), while 57 per cent anticipate higher sales revenue for their own business.

This means CEOs in the building sector are more optimistic about the outlook for their industry than are leaders in any other sector except services, in which 44 per cent expected better operating conditions this year.

However, only 14 per cent of CEOs surveyed from within the industry expect to increase employment numbers this year (against 19 per cent expecting a decrease), casting doubt on the extent to which benefits of higher levels of building activity will flow through to the sector’s workforce.

In other survey results (construction sector only):

  • 32 per cent of CEOs say their most important growth strategy this year revolves around increasing sales of existing products/offerings. Developing new products (21 per cent), developing new domestic markets (19 per cent) and lifting profits through cost reductions (12 per cent) are less important considerations.
  • 24 per cent expect their level of capital spending to rise this year, while 10 per cent expect a decline in this area and 67 per cent expect no change.
  • 26 per cent of respondents expect labour productivity to rise, while 11 per cent expect productivity to fall.
  • 31 per cent expect spending on research and development to rise while only 11 per cent expect it to fall. Spending on research and development in the industry increased more than eightfold from less than $100 million at the start of the decade to around $800 million in 2012, ABS statistics suggest.
  • 41 per cent expect input costs to rise (a further 53 per cent expect no change), while 47 per cent expect energy costs to increase.
  • 39 per cent expect unit labour costs to rise while 11 per cent expect declines in this area.
  • Customer demand continues to be the biggest inhibitor to growth (cited as a ‘top three’ inhibiting factor by 23 per cent of respondents) followed by wage pressures (18 per cent) and skills shortages (15 per cent).

The relatively upbeat nature of survey results in construction contrasts with more tentative sentiment throughout the broader economy, where the number of leaders expecting conditions to improve (37 per cent) only just exceeds that anticipating further deterioration (35 per cent) and those in the manufacturing and mining services areas are particularly downbeat.

Commenting on the overall results, Ai Group chief executive officer Innes Willox said the nation was still a ways off the rebound needed for non-mining sectors of the economy to pick up the slack from the resource sector slowdown, and challenged governments to adopt policies which are conducive to improving competitiveness and productivity.

“This year’s CEO Survey suggests that 2014 will continue to see only modest growth in production, sales and employment as the economy struggles to rebalance in the face of lower levels of investment in resource projects and lower commodity prices,” Willox said.

“While low interest rates have begun to have an impact in some sectors and while competitiveness has improved with the lower Australian dollar, we are still some way from the required rebound in the non-mining sectors of the economy. In particular, business investment in the non-mining sectors is set to improve only marginally in 2014 from very low levels.”

The survey results follow the latest building approval figures from the ABS indicating a significant upturn in building activity.

Despite having contracted from the previous month, the seasonally adjusted number of dwelling approved for construction throughout the nation in December was up by more than a fifth compared with the previous corresponding figure one year earlier.

Meanwhile, with the overall dollar value of non-residential building approved for construction having risen from $34.7 billion in calendar 2012 to $37.4 billion in 2013, there are plenty of signs of recovery in commercial construction.

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