Winners and Losers in 2015 Construction Outlook

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Monday, December 15th, 2014
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Fortunes among various participants within the building and construction sector throughout Australia in 2014/15 are set to vary according to the geographical location and sector in which contractors are operating, according to the latest forecasts.

Releasing its Construction Market Report December 2014, Australian Construction Industry Forum (ACIF) says the overall dollar value of work done on building and construction projects throughout the country is set to ease back from $233 billion in 2013/14 to a still respectable $228 billion in 2014/15.

However, as has been the case in recent times, the apparently steady picture overall masks significant disparity across sectors and geographical locations, with strong growth expected in detached housing especially in New South Wales and South-East Queensland but activity expected to flatten out in commercial building and decline by an annual average rate of 6.8 per cent between now and 2018/19 in civil construction.

This phenomenon will negatively impact some contractors and suppliers of mining sector clients but should benefit smaller home builders as well as occupations and trades with heavy exposure to the detached housing sector such as bricklaying, plastering, tiling, and residential landscaping and site management.

Commenting on the overall economy, ACIF chief executive officer Peter Barda said soft conditions were prevailing in much of the world while Australia was growing slowly, but added that this picture had a silver lining in the short term in terms of keeping interest rates low.

“Global economic growth has been revised downwards following lower than expected growth in the first half of 2014,”Barda said. “Australia’s economic growth of 2.5 per cent in 2013-14 was generally in par with what we had foreshadowed six months ago.”

“However, a sluggish recovery in Europe and a strong domestic currency means that interest rate rises are likely to be deferred to encourage consumption spending until at least the end of 2014-15 – a later date than thought earlier in the year.”

Key points:

Key points in the latest forecasts are as follows:

  • The overall dollar value of construction work done throughout Australia will contract slightly from $233 billion in 2013/14 but remain reasonably high by historic standards at $228 billion in 2014/15.
  • Strong growth will continue in residential construction until a firming of interest rates returns growth to underlying trend rates in 2016/17, with the dollar value of work done set to rise from around $75 billion in 2013/14 to around $90 billion in 2017/18. The previously flat detached housing sector will be the biggest area of growth expanding from around $26 billion now to around $33 billion by 2016/17.
  • Following a moderate growth spurt in 2014/15, the dollar value of work done in the commercial building sector is expected to flatten out and grow by only 0.6 per cent over the next decade, with recent growth in retail set to flatten out and flat activity expected in office building except for a modest growth spurt in 2016/17.
  • Coming off extraordinary highs, civil construction activity is expected to drop back by an average of 6.8 per cent per year until but remain at respectable levels. Road construction is expected to grow strongly, though the likely abandonment of the East West Link in Melbourne has dinted the growth outlook a little in this sector. Resource work is obviously expected to drop back, while activity in the building of water and sewerage facilities will continue to decline notwithstanding recent signals from the current government about dam building.
  • In terms of states, New South Wales will continue to experience strong growth whilst Queensland will be impacted by the drop back in resource work notwithstanding strong housing activity in the South East. Activity in Western Australia will be reasonably subdued compared with recent historic highs whilst Victoria will experience modest growth at best.
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