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Australia’s construction to remain sluggish up until 2020

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World Cement,

Australia’s construction industry suffered a dramatic decline in 2015: in real terms, the industry’s output contracted by 4.0% in 2015, following an average annual increase of 5.6% in the preceding four years. This was mainly due to a decline in the mining-related construction activity, which reflected the drop in investment following the fall in global commodity prices. Looking at the near future, Timetric forecasts the industry to decline further in 2016-2018, by an annual average of 2.7%, before a slow pick-up in 2019-2020.

Despite a slowdown in the mining sector and the cancellation of various oil and gas projects, the infrastructure, commercial and institutional construction markets will contribute to the industry’s output over the forecast period (2016 -2020). This is a result of a rise in government spending on the education and healthcare sectors, and retail sales growth. In addition, various infrastructure development programs such as the Investment Road and Rail Program, the Black Spot Program, the Roads to Recovery Program and the National Highway Upgrade Program will support the Australian construction industry.

Residential construction is anticipated to remain the largest market over the next five years with 34.7% of the total industry’s value in 2020, driven by low interest rates, migration to urban regions, a growing population and a rise in building permits.

The residential construction market has been a major driver of growth in Australia’s overall construction industry in the past two years, offsetting much of the recent weakness in mining and energy-related construction projects. A key contributing factor in the residential sector’s rapid growth has been the rising investment in high-rise residential projects. Official data on approvals for residential projects reveal that high-rise residential is by far outpacing the expansion in other sectors, notably housing for which there has been a slowdown in the rate of increase in approvals. However, there are risks associated with this rapid expansion.

Danny Richards, Lead Economist at Timetric’s CIC, comments: “This boom in high-rise residential buildings is generating anxiety among policymakers, with the Reserve Bank of Australia (RBA) recently warning that if the expansion continued along current trends, it could lead to an excessive increase in construction activity and future supply overhang, with the inner-city areas of Melbourne and Brisbane being particular areas of concern.”

Adapted from press release by Joseph Green

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