Construction industry to contract

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By Leith van Onselen

From Property Observer today comes the latest forecasts from BCI Media Group forecasting a weak outlook for construction activity across Australia:

The construction industry is forecast to contract 4% over the three months to May 2013, according to short-term forecasts from the BCI Media Group.

BCI is forecasting $15.6 billion in total construction starts over the three-month period compared with $16.2 billion in the previous three-month period from December to February.

Total building construction is expected to fall 10% over this period with a 20% decline in the value of residential construction (including aged care accommodation).

The longer-term trend shows an 11% pick-up in residential construction for the May quarter of 2013 compared with the May quarter 0f 2012.

Commercial construction activity is expected to pick-up by 80% over the May 2013 quarter in line with longer-term growth, up 27% year-on-year.

The fall in total construction starts is being driven by a sharper fall in the infrastructure sector as the government cuts back on spending.

The long-term trend shows total construction starts in Australia at negative 3% when contrasting the value of 12 months’ construction starts against the corresponding 12- month period a year earlier.

BCI says there is unlikely to be any major improvement in the construction sector over the next twelve months as the high Australian Dollar, tight company budgets, and tough bank lending criteria continue to squeeze the market.

Whilst there are some signs of activity in the commercial and residential sectors, the overall building construction market continues to track sideways. On a state level, growth is showing through in New South Wales and Queensland; although in Queensland’s case any optimism needs to be tempered as the market remains nearly twenty per cent below where it was three years ago.

With the peak of the mining investment boom approaching (if not here already), the RBA will be praying that residential construction lifts sharply to fill the void left as the mining boom unwinds. So far, the recovery appears tentative at best.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.