Electricity, Gas and Water: Cost & Activity Forecasts

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In the electricity, gas and water (EGW) sector, the outlook is for subdued cost inflation over the next few years. The inflationary environment in the Australian economy is expected to remain weak for a few years. The outbreak of Coronavirus (COVID-19) and the restrictions put in place to slow its spread have caused big shifts in the labour market. Some of this weakness is forecast to flow through to lower cost growth in the coming quarters.

It is important to note that there is likely to be only a small and short-term impact from COVID-19 on the utilities construction sector, in comparison to other construction sectors. A large proportion of construction work is government funded and much of the rest is undertaken by private sector owned utilities businesses, which should not be greatly affected by weaker demand during the pandemic.

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Australian Construction Outlook – Non-Residential Building

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Non-residential building went through a substantial boom in the value of work commenced from 2015/16 through to early 2020. The coinciding commencement of a large number of projects influenced the rise in work done, which saw total work done reach an all-time record high in 2018/19.

This boom has now come to an end. We expect a substantial contraction over the next two years, due to the impact of Coronavirus (COVID-19) on the construction sector. A sharp downturn was already expected to follow this boom, as a result of the completion of substantial new space, combined with an economy that was already showing signs of slowing, and weakening government revenues resulting from the residential property downturn. COVID-19 has brought forward this downturn by 6 to 12 months (depending on the sector and state), on our forecasts, and made it a much larger overall decline. We are forecasting total commencements to fall 17%, in real terms, in 2020/21, prior to a recovery in 2021/22.

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Australian Construction Cost Trends

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The outlook for construction cost growth has changed markedly over the last six months, owing to the outbreak of COVID-19 and the restrictions put in place to slow its spread. Construction cost inflation was 2.4% in 2018/19, but we now expect it to come in at negative 0.2% in 2019/20, and around 0.7% in 2020/21. The drivers of this slowdown include:

  • Lower commodity prices, particularly crude oil
  • A downturn in construction activity, most notably residential and non-residential building
  • A much weaker labour market
  • A stabilisation of the Australian dollar
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Australian Construction Outlook – Transport Infrastructure

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Australia is in the middle of our biggest ever transport infrastructure boom, featuring:

  • An unprecedented collection of big capital city projects (road and rail),
  • A ramping-up of urban renewal, maintenance and improvement programs (including arterial road upgrades and level crossing removal programs), and
  • A general improvement, on a less splashy scale, of regional works (including Inland Rail and ongoing, large scale upgrades on the Bruce, Pacific, and Princes Highways).

It is important to note that transport infrastructure is one of the areas of building & construction that is least impacted by the implications of COVID-19. This report provides a concise explanation of the nature and magnitude of the impacts in the various segments of transport-related construction. It also provides a fully revised set of forecasts, and corresponding project list, for all segments of transport infrastructure construction looking ahead ten years.

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Alternative Construction Market Segmentation

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The COVID-19 pandemic has dramatically changed the outlook for building and construction activity. Whilst total construction is expected to fall over the next couple of years, not all segments are forecasted to decline, as the impacts of COVID-19 varies from segment to segment. The following recovery in total construction is expected to largely be driven by growth in residential building, oil & gas, mining, road and rail.

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Australian Construction Projects Database

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This latest list of projects included in our forecasts corresponds with the fully revised set of forecasts published in May 2020.

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Australian Regional Construction Outlook

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The metropolitan areas of Sydney and Melbourne plateaued in 2018/19 and we are expecting downturns in both regions over the next couple of years driven by the falling residential sector. However, we expect that both downturns will be softened by booming commercial building sectors and a number of large urban transport infrastructure projects (road and rail) in each city.

The Brisbane market was previously expected to be entering an upturn, but is now forecasted to fall the next couple of years. This is largely due to more dramatic declines in residential than previously expected.

Perth has declined over the past few years, mainly due to a big drop in residential building and a weak economy (related to the mining downturn). Transport projects and a small upturn in non-residential building should slow the decline in 2019/20. Following the trough, strong improvements in the residential sector are then expected to drive a recovery in total activity.

The resources-dominated Pilbara has seen enormous downturns in activity and big outflows of people but is expected to rebound reasonably strongly from 2020/21 and then plateau for most of the forecast period.

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Impact of COVID-19 on Australian Construction

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This new report examines the impact of the COVID-19 pandemic on all segments of construction activity in Australia.

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Australian Construction Outlook – Overview

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The outlook for building and construction activity has changed dramatically in the last few months. The impact of the COVID-19 pandemic, and the government responses to it, will vary greatly across the segments of building and construction work. Some sectors are likely to fall precipitously, while others will see little change, or even increase due to government stimulus measures. In financial year terms, FY2021 will be the most affected, although the final quarter of FY2020 will also suffer a large negative impact.

This report provides a concise explanation of the nature and magnitude of the impacts in the various segments of building and construction. It provides a fully revised set of forecasts for all segments of building and construction looking ahead ten years.

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Australian Construction Outlook – Resources

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COVID-19 has delayed the upturn which was previously expected to start in 2020, causing construction work done to fall or be stunted across the different resource segments. The downturn in demand for commodities, and expected further declines, have caused falls in prices, cash flow concerns and undermined the feasibility of projects, at least temporarily. Despite this, one bright spot is the strong growth in other minerals, driven largely by iron ore projects. Total resources construction is expected to begin to recover in 2021, increasing strongly from the middle of the year, and rising through to a peak in 2022/23.

But the upturn has a limited time frame and the outlook is highly variable among the different resource segments.

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