Australia | Jan 17 2007
By Chris Shaw
BIS Shrapnel has just completed its annual study of road construction and maintenance activity, drawing the conclusion the sector has now entered a downturn after four years of strong growth. This has implications for Australia’s growth, as the group notes the sector accounts for around one-third of the activity in the engineering construction sector.
On the group’s estimates the 2005/06 total for toll road construction of $1.7bn will be a peak in the medium-term, particularly as a number of large projects such as the Lane Cove Tunnel and EastLink are nearing completion.
At the same time subdivision road construction, which has also experienced strong growth, is likely to decline by as much as $900m in coming years. This is significant given the group estimates the sector was a $3.3bn market in 2005/06.
In a case of things coming in threes, BIS also points out construction of access roads has been strong as Australia has enjoyed the boom in commodity prices but this too appears to be coming to an end. The group expects the mining investment boom to turn into a bust in the next two years, meaning the recent increases in access road construction activity are unlikely to be sustainable.
In overall terms the group estimates a fall in total activity of around 5% over the next three years, though as with other sectors of the economy this will not be spread evenly across the states. New South Wales is likely to be among the hardest hit with a 30% downturn expected, while strength should continue in Queensland as the group sees a 44% increase in activity over the next two years.
BIS suggests risk remains to the downside though, as cost blowouts and labour shortages may put an end to some plans by making them uneconomic. As a result, the researchers suggest while projected works remain high, the reality may be activity is somewhat lower as plans become more of a wish list than actual projects.