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Major construction on track for solid upturn

A recovery is forecast for major construction project work through to mid-2019 according to the latest Australian Industry Group/ Australian Constructors Association Construction Outlook survey released today. The forecast for a solid upturn follows three years of declining construction activity.

A key driver of activity will come from non-mining infrastructure work in line with the significant growth impetus from public sector spending on transport infrastructure projects and higher levels of private sector investment in commercial building.

After dropping by 2.1% in 2016-17 (current prices), the total value of major project work is forecast to rise by a solid 7.1% in 2017-18, followed by a further lift of 6.8% in 2018-19.  

Australian Industry Group Chief Executive, Innes Willox, said: "The survey suggests the worst of the decline in mining-related construction is now behind us along with its negative impact on broader industry conditions. Rising momentum in new road and rail projects, together with telecommunications infrastructure including the NBN, will also support a strong upswing in the value of engineering construction, which is expected to rise by 8.0% in 2017-18 and a further 10.6% in 2018-19 after shrinking by 6.5% in 2016-17. This is very positive for the construction industry businesses, their employees and contractors and the mining, manufacturing and service businesses active in construction supply chains. Governments and training providers should be taking notice of the emerging skill shortages in the construction sector and be quick to respond with changes to relevant training and immigration categories," Mr Willox said.

Australian Constructors Association (ACA) Executive Director, Lindsay Le Compte, said: "NSW and Victoria are powering ahead with much needed construction to support metropolitan and regional infrastructure needs. This is very encouraging for industry as it will support the development and implementation of plans for sustainable industry skills development and job creation, as well as pave the way for more innovative approaches to procurement and project delivery processes to achieve better infrastructure outcomes for the community. The larger infrastructure projects will also support additional construction and commercial development along project corridors and provide essential support to the wider construction sector," Mr Le Compte said.

In other survey findings, commercial construction is forecast to pick up with the survey pointing to a strong pipeline of work over the next two years, recovering from a broadly stable 2016-17 to increase by 1.8% in 2017-18 and a further 9.4% in 2018-19.

Conditions also remain strong for multi-level apartments in 2017-18 (+18.9%), as construction companies continue to work through a solid backlog of work. But this is seen as the peak year in the current cycle, with activity set to turn down sharply in 2018-19 (-15.4%).

Key Points from the Ai Group / ACA Construction Outlook survey:

TURNOVER FROM MAJOR CONSTRUCTION WORK: Outlook at a glance

 

2016-17

2017-18 (e)

2018-19 (e)

SECTOR

% p.a.

% p.a.

% p.a.

Engineering

-6.5

8.0

10.6

Commercial construction

-0.4

1.8

9.4

Multi-level Apartments

16.4

18.9

-15.4

Overseas business

6.1

3.9

4.3

Total major construction

-2.1

7.1

6.8

 

  • The latest Australian Industry Group/Australian Constructors Association Construction Outlook survey of the non-residential construction industry found that after dropping by 2.1% in 2016-17 (current prices), the value of turnover from major project work is forecast to rise by a solid 7.1% in 2017-18, and a further 6.8% in 2018-19.
  • Weakness in resources-related engineering construction will be concentrated in the oil and gas processing sector (-40% in 2017-18 and -53.0% in 2018-19) as major LNG projects are completed. The drag from reduced mining investment (other than oil and gas) is moderating, with a slower fall predicted in turnover-derived from mining projects (-6.3%) in 2017-18 after a 20.7% fall in 2016-17. A stabilisation in mining-related construction is expected to follow in 2018-19.
  • Following a decline of 2.7% in the previous 12-month period, total employment in major construction recovered by 3.1% in the year to July 2017, reflecting the upturn in non-mining infrastructure investment in 2016-17. Improvement in overall activity is expected to underwrite continued job gains in the year ahead.
  • Businesses are reporting worsening labour shortages, with 63.6% of respondents reporting either 'major' or 'moderate' difficulty in recruiting skilled labour in the six months to September 2017, up from 39.2% in the previous six months. Sourcing of sub-contractors has also grown as a key concern, with the proportion experiencing 'major' or 'moderate' difficulty increasing to 50.0% in the six months to September 2017, up from 39.2% in the previous period.
  • Labour costs remain a source of pressure for the construction of infrastructure and building projects, with heightened labour cost pressures expected to be exerted in 2018 as major projects ramp up and contractors increasingly compete for the same pool skilled labour.
  • The sourcing of building materials was of greater concern for the industry in the six months to September 2017, with 45.5% of respondents citing ‘major’ or ‘moderate’ difficulty, up from 21.7% six months earlier.

Link to full report:  www.aigroup.com.au/policy-and-research/economics/constructionoutlook/

Further Comment
Ai Group: Tony Melville – 0419 190 347
ACA:
Lindsay Le Compte – 0417 481 500

Background: The Australian Industry Group / Australian Constructors Association Construction Outlook survey was conducted in August/September in association with the Australian Constructors Association, the peak industry body representing the nation’s major construction contractors. The survey covered the responses of 100 major construction companies employing approximately 51,000 persons with combined turnover of around $20 billion.