Australia | Feb 04 2008
By Chris Shaw
The global economic outlook may be deteriorating but the Australian economy continues to perform well and this is reflected in a positive outlook for engineering construction in coming years in a report by consultant BIS Shrapnel.
The group’s report, titled Engineering Construction Activity in Australia 2007/08 to 2021/22, suggests while this year may represent a peak to be followed by a slight easing in activity over the next two years the longer-term outlook remains strong, with a pick-up in activity levels expected from 2010.
BIS notes the strength of recent years has been driven by the mining and infrastructure sectors, which are forecast to deliver an increase in activity of 8-9% this year, an outcome that would match the growth in 2006/07.
While a modest downturn is then expected the group points out this is due in large part to the completion of a number of large projects and ongoing cost pressures, but with years of under-investment still to be addressed the outlook remains for solid activity levels across a number of sectors.
This is reflected in Australian Bureau of Statistics figures that show total work done in the September quarter was $49 billion, while the value of civil commencements as at September of last year was $64 billion. Work yet to be done on existing projects as at the same time stood at $42 billion.
BIS notes to this should be added spending on new projects, with work being needed in the road, rail and port sectors as well as in water infrastructure. Given the solid financial position of most state governments at present and the likelihood of further strong demand for raw materials from China driving the need to address infrastructure bottlenecks, there is little to suggest any downturn will be anything other than shallow and relatively short-lived.
On a state-by-state basis there is some variability in outlook in coming years, as BIS is forecasting a 10% increase in activity in New South Wales in both 2007/08 and 2008/09 after a 7% fall in 2006/07. The keys to the increase will be additional work on coal and freight port capacity, while the Kurnell desalination plant project is worth around $2 billion and highlights the type of new projects expected to commence in coming years.
Victoria is likely to experience a fall of around 5% over the next two years, with roads the major culprit given the completion of the $3 billion EastLink toll. Risk appears to the upside though as BIS notes there may be some new projects such as the $1.4 billion Kipper oil development.
Queensland is expected to enjoy another two years of solid growth thanks to ongoing activity in the mining sector, though a mild downturn after that is likely and could be exacerbated by any delays to road, rail, port or heavy industry projects.
After recording a 27% increase in 2006/07 South Australia is set for an even stronger 2007/08, BIS forecasting a 30% increase in activity levels in the current year thanks in large part to mining projects such as Prominent Hill. With Olympic Dam’s expansion due in coming years along with a number of road, water and harbour projects the group suggests the outlook for the state remains very positive in the medium-term.
A similar positive outlook is in place for the ACT, as BIS notes water and waste water projects should see an increase in activity levels of around 50% over the next couple of years.
In contrast Western Australia is forecast to experience a 15% decline over the next two years, but as BIS points out this is from extremely high levels on the back of major iron ore expansions and port and rail work. The downturn is expected to have finished by 2010/11 though, the group expecting this year to mark the beginning of a further strong upswing in activity.
Tasmania and the Northern Territory are expected to follow similar patterns and experience downturns over the next couple of years as work finishes on existing projects, Tasmania with some additional downside risk if the Gunns ((GNS)) pulp mill project doesn’t eventually go ahead.