Privately-funded civil construction to decline

Written on the 14 September 2009

Privately-funded civil construction to decline

ENGINEERING construction activity is set to decline 15 per cent over the next two years despite Federal Government stimulus and the likely start of work on the massive Gorgon LNG project, according to leading industry analyst and economic forecaster, BIS Shrapnel.

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 per cent decline in privately funded projects over the next two years.

The company 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.

Engineering construction activity rose another 20 per cent in Queensland in 2008/09, but a sharp 30 per cent decline is forecast for the next two years as major projects are now complete or winding down.

Roads and bridges (Gateway Duplication, major toll roads), water (Recycled Water Grid), electricity and mining and heavy industry construction (particularly the Yarwun alumina refinery expansion and Boyne Island smelter works) are almost complete. Oil and gas will provide some support to the Queensland economy but there is no major LNG project expected to start within the next two years.

“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,” says Adrian Hart, senior manager for BIS Shrapnel’s Infrastructure and Mining Unit.

“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,” says Hart.

“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.”

Hart says that given in 2008/09 the private sector funded nearly two-thirds of all civil construction activity, which was worth around $44 billion in constant 2006/07 prices, declining activity from this sector will have substantial impact on overall activity.

“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.”

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

This, says Hart, would present governments an opportunity to begin winding back their stimulus measures.

“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,” says Hart.

“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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