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Australia Infrastructure Report Q4 2011
Business Monitor International, Sep 2011, Pages: 87
Business Monitor International's Australia Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Australia's infrastructure industry.
BMI View: A number of leading indicators have painted a mixed picture of Australia’s construction industry over the first half of the year. While infrastructure appears to be holding up relatively well, residential and non-residential building – residential and commercial construction specifically – seems to be weak and getting worse. Overall, BMI are still expecting a slowdown to take hold, with growth of just 0.8% year-on-year (y-o-y) for the industry as a whole. Despite this weak near-term outlook, over the longer term (to 2015) BMI are more optimistic.
Key factors guiding BMIs short-term outlook:
- The value of construction work carried out in the first quarter of 2011 was weak in terms of quarter-on-quarter (q-o-q) activity, growing by just 0.7%. Non-residential construction was by far the worst performer, contracting significantly both q-o-q and y-o-y. Residential construction was also weak on a q-o-q basis, although it was strong y-o-y, indicating a mixed picture. Engineering work continued to grow strongly, especially y-o-y.
- This growth scenario is reflected in the first quarter gross value added data. On a y-o-y basis, construction industry value grew by 7%, indicating robust activity; however the sector is definitely trending towards a slowdown, with q-o-q activity growing by just 1.2%.
- The Performance of Construction Index (PCI) (compiled by the Australian Industry Group) contracted for the 13th consecutive month in June 2011. The index takes into account new orders, activity and employment in the sector. While declines in activity were felt across the board, construction of apartments was the worst performer, with engineering having the slowest rate of decline. New orders also reflect this trend, with residential and construction orders the worst affected. The best performing, in line with trends seen in other indicators, was engineering, which – despite also contracting – only witnessed a fourth month of consecutive decline.
While the figures for work carried out and industry value-added paint a mixed picture, with engineering (infrastructure) still performing well and the industry as a whole still growing, there will almost certainly be a slowdown in growth, with a contraction inevitable in residential and non-residential construction sector. The potential for growth over the coming months is undermined by the PCI data which shows new orders dropping off in the first half of 2011. This indicates that there will be less new projects starting construction and therefore little to sustain the industry over the short term.
Although short-term woes are weighing down on the industry as a whole, there are a couple of sectors which are currently outperforming. Transport infrastructure is perhaps the most dynamic sector in an industry which is seeing little in the way of contract awards. The key source of demand is the private sector, specifically the mining industry. This has proved a catalyst for demand for freight transport infrastructure, with the expansion of port capacity across Australia and the upgrading of rail track to cater for strong demand from China. Significant public sector spending plans for urban transport are also boosting opportunities in the sector; however, uncertainty over the level of commitment to these plans and the fiscal ability to fund projects is raising some questions.
Indeed, the infrastructure sector has outperformed the construction industry as a whole according to the PCI, and in terms of construction work carried out. BMI therefore believe the subsector will register stronger growth than the sector as a whole, with 3.4% forecast.
The residential and non residential building sector, however, is expected to underperform the construction sector as a whole, with -0.2% y-o-y growth predicted. With commercial and residential activity both experiencing weakness, BMI do not anticipate growth over the course of the year.
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