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Transport infrastructure construction on the cusp of an unprecedented wave of growth
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Australia’s transport infrastructure construction sector is in the early stages of a boom, which is projected to last through the next three years. Our forecasts for transport construction activity, as of January 2023, tell a similar story to that of our previous newsletter on this sector. While we can now see the beginning of the long-awaited upturn in construction work done, it is a little weaker than we had expected. Three main headwinds have been weighing on the developing boom:
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- A record-breaking rise in construction costs, amidst high inflation in the economy generally, causing budget blow-outs and delays;
- Shortages of key inputs, due to domestic and international supply chains for materials being disrupted, as well as labour shortages; and
- Unusually wet weather in Australia’s eastern states during 2022, which interrupted the amount of construction work completed.
There have also been some project–specific causes of delay, including problems with engineering, route planning and community consultation. A key example of this is the Inland Rail project, which is now the subject of a Federal Government inquiry.
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While we expect some supply chain issues to persist, improvements are expected in 2023, along with falling rates of cost inflation and an influx of skilled labour.
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According to the latest data available, construction activity gained momentum in the year to September 2022, rising by 11.3% (following a 5.6% increase in the year to September 2021). The value of construction work commenced, however, increased more than 50% (in real terms) in the year to September 2022, reaching $42 billion – an 11-year high. This sharp rise in project commencements is a strong indicator of further growth ahead for work done.
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Road construction is expected to peak in 2023/24, at $30 billion, and since the roads sector accounts for around 60% of overall transport construction, total transport construction is forecasted to peak in the same year. In percentage terms, rail construction will experience the most growth, with activity over the next five years to be 70% higher than the previous five – mainly owing to increased funding for fast-tracked heavy and light rail projects in the capital cities.
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We ultimately expect a downturn once the current wave of big projects moves to completion, and as the budget circumstances of State Governments become less conducive to further expansions of capital spending. The next downturn will be substantially less severe than the previous downturn, which occurred between 2012/13 and 2015/16, and saw activity decline by 42%.
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If your organisation requires help with project cost escalation forecasts, please get in touch with us, at info@macromonitor.com.au.
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Our most recent reports:
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Australian Construction Cost Trends
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This report examines the outlook for construction costs, in detail be sector and type of input.
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Australian Construction Projects Database
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This latest list of projects corresponds with our fully revised set of forecasts published in November 2023.
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Australian Regional Construction Outlook
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Our latest regional forecasts for residential building and construction have just been released.
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Australian Construction Materials Forecasts
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Our latest forecasts assess the implications for construction materials demand of the current outlook for building and construction.
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Australian Road and Bridge Works
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This report examines the strength and composition of the current upturn, and determines the likely timing of the peak, and subsequent decline.
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