INFRASTRUCTURE SLUMP 'THREAT TO ECONOMY'
Written on the 4 May 2015 by Karen Rickert
AUSTRALIA'S engineering construction industry is heading for a "collapse" that will hurt the broader economy, according to BIS Shrapnel.
The economic researcher predicts total work in the sector to fall by 40 per cent to $79.6 billion in 2017-18 from its peak of $130.3 billion in 2012-13.
BIS Shrapnel warns that rising residential building activity won't be enough to stem the slide which will impact construction jobs and curb economic growth below 3 per cent.
The completion of six different LNG projects during the next three years is a major contributor to the bleak outlook.
Mining activity is also anticipated to drop 60 per cent by 2018, with further falls to come for coal and minerals construction.
BIS Shrapnel infrastructure and mining senior manager Adrian Hart says falling government investment in resources and infrastructure has created a policy dilemma.
"The fact is that progress on public infrastructure investment is highly unbalanced across Australia," Hart says.
"While NSW is leading the next infrastructure investment cycle given the large number of funded projects now getting under way, it will take longer for other states to catch up.
"Recent election results in Victoria and Queensland will delay the upswing in those states as new projects, plans and governance processes are developed, while Western Australia and South Australia will suffer from weaker growth in revenues as the resources boom continues to unwind."
Hart says 2013-2014 saw $28.7 billion in publicly-funded activity, the lowest level since 2007-2008 as state and federal government completed projects without replacing them with new enterprises.
Roads, bridges, railways and telecommunications investment will be key growth segments in coming years, and help to offset the impact of mining decline.
Engineering construction work is shifting from regional resources hubs, such as the Pilbara and Gladstone, to Sydney.
NSW appears set to weather the downturn, with activity tipped to rebound 27 per cent until 2018-2019 thanks to an "impressive" pipeline of infrastructure projects.
Work in Queensland is expected to fall 54 per cent over the same period, after coming off a cycle of LNG investment.
Hart says the biggest winners in the sector will be companies that tap into the non-resources market of infrastructure activity.
"While there is a temptation to think so, it's not all bad news out there and the smarter companies in this space are tracking the opportunities project by project, subsector by subsector," he says.
"For example, falling mining investment is impacting on related railways construction through the next five years, but passenger rail and freight works are expected to rise strongly given the outlook for key projects and the need to reinvest."
Hart says considering the severity of the downturn, the public sector should also help smooth out the cycle by securing a workbook of infrastructure projects.
Current economic conditions would bolster the move, including historically low costs of capital, lower rates of construction cost escalation and a strong market appetite for existing infrastructure assets.
"Governments should not box themselves in by focusing on particular segments, such as roads at the expense of rail, or funding solutions such as asset sales versus debt," he says.
"At the end of the day, meeting the infrastructure challenge will require a balanced mix of approaches."