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Infrastructure to lift major project activity in 2017

The latest Australian Industry Group/Australian Constructors Association Construction Outlook survey released today suggests that very strong growth from transport-related infrastructure projects will help drive gradual improvement in the sector into 2017.

The survey of the nation's leading construction companies identifies a much-needed improvement in turnover next year supported by a broader base of activity as the infrastructure and commercial sectors recover and apartment building maintains growth.

After dropping sharply by 8.0% in the calendar year 2015, the survey forecasts that the value of turnover from major non-residential project work is expected to edge lower in 2016 (-0.4%) before recovering some ground with a 4.5% rise in 2017.

A bigger pipeline of infrastructure activity is set to drive a 5.5% lift in engineering construction in 2017 after falling again in 2016 (-2.9%). This will be underpinned by strong investment in urban transport infrastructure with the survey pointing to solid rises in revenue from both road (+11.7%) and rail projects (+14.8%) in 2017.

The survey also anticipates a further decline in resources-related engineering construction in 2017. However, it indicates that the drag from reduced mining investment is likely to wane with slower falls in turnover derived from mining and heavy industrial construction projects during the year.

Across the other major sectors, multi-level apartment development is expected to continue to grow strongly in 2016 (+10.8%), before easing in 2017 (+1.5%) due to slowing apartment approvals and price growth, and possible excess supply in selected capital city locations.

Commercial construction (including offices and retail building) is expected to strengthen modestly from a forecast 1.0% rise in 2016 followed by a 4.0% lift in 2017. Private sector building work will be the main driver of growth in both years.

Australian Industry Group Chief Executive, Innes Willox, said: "The rebalancing of the construction sector is set to continue through the remainder of 2016 and into 2017 with very strong growth from transport-related infrastructure projects expected to gradually offset the further declines in resource-related work. An easing of apartment-building from current very high levels is expected to be offset somewhat by an anticipated lift in commercial construction. It is vital that workplace relations arrangements in the sector not only assist in containing costs but also have sufficient flexibility to allow the sector to expand as smoothly as possible."

Australian Constructors Association (ACA) Executive Director, Lindsay Le Compte, said: "Infrastructure construction is gathering momentum and is expected to help offset the downturn in resources construction in 2017 as state and territory governments implement capital works strategies aimed at supporting local economies and providing or renewing core infrastructure and community services. Importantly, the lift in major project activity will also support commercial and related construction as the private sector looks for opportunities along infrastructure corridors or surrounding major infrastructure facilities. There is also an opportunity for governments and the private sector to review and improve their approach to procurement, and achieve greater efficiencies in the development, delivery and management of projects and facilities."

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

TURNOVER FROM CONSTRUCTION WORK: Outlook at a glance

 

2015

2016(e)

    2017(e)

SECTOR

% p.a.

% p.a.

% p.a.

Engineering

-14.0

-2.9

5.5

Commercial construction

-2.3

1.0

4.0

Multi-level Apartments

22.4

10.8

1.5

Overseas business

4.4

-0.5

2.0

Total construction

-8.0

-0.4

4.5

• The latest Australian Industry Group/Australian Constructors Association Construction Outlook survey of the non-residential construction industry found that after dropping sharply by 8.0%.in calendar year 2015 (current prices), the value of turnover from major project work is expected to stabilise in 2016 - before recovering some ground with a 4.5% rise in 2017.
• Total employment fell through the year to February 2016 in response to the winding back in mining-related work. However, a recovery in employment is expected over the reminder of 2016 and the first half of 2017 as rising infrastructure work leads to an increase in workforce requirements.
• Reflecting a lift in workforce demand as major infrastructure works come on stream, labour shortages are again emerging. 44.4% of respondents reported either major or moderate difficulty in the recruitment of skilled labour in the six months to March 2016, up from 29.1% in the previous six months. Sourcing of sub-contractors was also a greater concern in the six months to March 2016, with an equal proportion (44.4%) citing major or moderate difficulty (up from 29.1%).
• The sourcing of building materials continues to be a dominant concern for the industry with 38.9% of respondents reporting major or moderate difficulty in the six months to March 2016, although this is slightly down from 41.9% six months ago.
• Labour and construction material costs remain a source of pressure for the construction of infrastructure and building projects. Upward pressures on direct labour costs are also expected to become more pronounced as large infrastructure projects increasingly move into construction and contractors are forced to compete for skilled labour.

Link to full report (embargoed until 14 June): Click here to view

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 March/April 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 companies employing approximately 45,000 persons with combined turnover of almost $29 billion.