Regional Analysis 2020 Australia and New Zealand

Australia and New Zealand Market Review 2020

Economic growth is expected to pick up on the back of monetary and fiscal stimuli, which is likely to boost household income and consumer spending, whilst the IMF has projected 2.3% growth for 2020.

AU$207.73bn
Australia construction output 2019
173,933
Australia total dwelling unit approvals
NZ$24.94bn
New Zealand construction output
243,000
New Zealand employment in construction

ANZ market summary 2020

ANZ market summary 2020

Australia Market Review

John Carleton, Regional Director of Linesight ANZ, reviews the construction industry performance in 2020, and discusses what we can expect in the coming months.

Economic overview

Australia’s economy slowed over the 2018-19 financial year due to a housing downturn and a severe drought, with the Australian Bureau of Statistics (ABS) announcing a 1.4% seasonally-adjusted growth rate, indicating the worst economic growth figures in 18 years. However, economic growth is expected to pick up on the back of monetary and fiscal stimuli, which is likely to boost household income and consumer spending. In its October 2019 World Economic Outlook, the IMF has projected 2.3% growth for 2020.

Inflation was 1.9% for 2019, which is a rise from 1.26% a year earlier, according to the ABS. Trimmed mean core inflation, which strips out volatile price movements, and is key to interest rate decisions, remained weak, with just a 0.4% increase in Q4 from the previous quarter and 1.6% on year, which falls far short of the Reserve Bank of Australia’s 2%-3% target.

Unemployment rose from a 5.1% rate to 5.3% in January 2020, but the chief ABS economist has pointed to higher workforce participation as the core cause. The general consensus amongst economists is that jobs numbers are consistent with weak annual wage growth of 2.2% for the last year. 

 

Construction

Total construction activity in Australia during the financial year 2018-2019 declined by approximately 9% compared to the previous year. Up until November 2019, dwelling unit approvals for the year had dropped by approximately 22%, and despite a further reduction in the record-low interest rates, access to finance and credit remains

cumbersome, presenting an additional challenge to developers, builders, investors and owner occupiers. In contrast, non-residential is in the middle of a growth phase, recording increased investment in accommodation, industrial and offices, together with increased public sector investment. This trend is expected to continue in the short to medium term.  

Completed work in the infrastructure sector fell by 5.5% over the last year, as a number of large projects reached completion and a transition period was required to get new projects underway. However, these new projects form part of expanded plans and programmes that are projected to bring growth to the sector again, leading to an expected total value of completed work to AU$66 billion in 2019-20 and AU$68 billion in 2020-21. 

As noted above, residential building activity has seen a significant decline, and is anticipated to further decline in 2020-2021. The increased infrastructure spend mentioned above is expected to somewhat offset this decline, and contribute towards the value of completed work recovering in 2020-2021, before returning to growth in 2021-2022. However, total construction activity is still expected to fall. 

Tender prices

It is expected that tender prices will increase by between 3% and 4% for infrastructure projects, and 1% to 2% for all other sectors in 2020.

Contributors: John Carleton and Albena Spasova

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