Construction set to plunge as private funding fades

Queensland’s engineering construction activity set for sharp decline of 30 percent, according to BIS Shrapnel

Construction set to plunge as private funding fades
Construction set to plunge as private funding fades

September 15, 2009

Despite rising 20 percent in the past two years, Queensland’s engineering construction activity is set for a sharp decline of 30 percent, according to BIS Shrapnel.

The national forecaster predicts a downward trend over the next two years, as major projects nearing completion start to wind down.

These include roads, bridges, electricity, mining and heavy industry construction such as the Yarwun alumina refinery expansion and Boyne Island smelter works.

It says oil and gas will provide some support to the Queensland economy, but there is no major LNG project expected to start within this period.

On a national level, BIS Shrapnel says engineering construction activity is set to decline 15 percent over the next two years, despite Federal Government stimulus.

In an update to its Engineering Construction in Australia, 2008/09–2022/23 report, BIS Shrapnel says the fall in work will be driven by a 25 percent decline in privately-funded work over the next two years.

Senior Manager Adrian Hart warns that as the current round of projects – predominantly in mining and related sectors – are completed, there will be fewer projects ready to take their place.

"While the outlook for the global economy has improved during 2009, we are still forecasting a substantial setback to minerals investment over the next one to two years given the ongoing credit squeeze and global slump in industrial production," Hart says.

"Even including work starting on the Gorgon LNG project in the first half of 2010, mining and heavy industry construction is set to decline by one-third over 2009/10 and 2010/11."

Apart from mining and heavy industry, BIS Shrapnel is forecasting a slump in privately-funded work over the next two years for other infrastructure sectors including roads, railways, ports and electricity.

Privately-funded road construction will be adversely impacted by the winding down or completion of large toll road projects in Brisbane as well as a setback to mining access road and subdivision construction, while railway and port activity will be affected by the completion of a raft of bulk commodity and container port developments.

Hart says the coming downturn in private investment justifies the need for governments to stay the course on their own spending and investment plans for at least for the next two years.

"There seems to be a perception that, having enjoyed an unprecedented boom over the past eight years, private funding for infrastructure will simply accelerate again from here, despite an ongoing financial crisis and the biggest global economic slump since World War II," he says.

"To the contrary, the next 12 to 18 months are going to see a sharp setback to privately-funded construction work – both in engineering construction and non-residential building – as the fallout from the financial crisis comes through."

Considering the private sector funded nearly two-thirds of all civil construction activity in 2008/09, declining activity from this sector is expected to have substantial impact on overall performance.

"In this environment, it would be prudent for governments around Australia to continue to spend and invest to minimise the impact of the downturn on jobs and economic growth," Hart says.

According to the updated forecasts, BIS Shrapnel expects a sustained recovery in privately-funded engineering construction activity from 2012, depending on a full resolution of credit problems and a pick-up in global economic growth.

"By 2012, BIS Shrapnel expects to see the next round of major mining projects ramping up across oil and gas, and coal and base metals," Hart says.

"This will encompass new mine works as well as related infrastructure including ports, railways, water, electricity and pipelines. The recovery would provide freshly-elected state and federal governments an opportunity to rein in their own spending plans and repair their budget bottom lines."

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