THE engineering and construction industry is set to grow to $82.5 billion next year -- double its size six years ago -- amid concerns of falling productivity in the industry.


The Australian Industry Group/Australian Contractors Association Outlook survey, released today, says the total value of private sector work would grow by 9.1 per cent this year, compared with 4.4 per cent last year.

 

The upward trend would continue next year, with an expected rise of 11 per cent.

 

The growth reflected a long list of new projects in mining, oil and gas processing and transport infrastructure. Solid growth was also expected in the telecommunications sector with the rollout of the National Broadband Network.

 

In contrast, however, prospects for commercial construction were likely to be more subdued, growing at just 1.2 per cent this year but strengthening to 6 per cent growth next year.

 

The continued weakness in commercial work (including the construction of offices, retail buildings and industrial premises) in 2011 reflects the unwinding of fiscal stimulus and weakness in private sector building activity.

 

The solid overall prospects for the industry growth, underpinned by strength in engineering construction, is expected to add to the supply pressures that already exist across the industry particularly for skilled labour. Of those companies surveyed, 72% anticipate major or moderate difficulty in recruiting qualified labour during the six months to September this year. Supply constraints are also putting upward pressure on input costs.

 

Australian Industry Group Chief Executive, Heather Ridout, said: "The survey shows that the engineering construction sector is set to enter a period of strong and accelerating growth on the back of the huge infrastructure investments required to support the expansion of the mining industry. This period will be marked by intensifying skill shortages which will put pressure on labour and labour costs in other parts of the industry and potentially beyond.

 

"At the same time, other parts of the construction industry are soft, especially commercial construction including retail, offices and industrial premises. The high dollar, higher interest rates and tight credit conditions are contributing to the pressures on commercial construction which is consistent with trends in the broader economy. Public sector investment in non residential building is also weakening while overseas business, although staging a modest recovery, looks set to remain under pressure from the dollar.

 

"In terms of addressing skill shortages, the recent Budget support for skill development and the reform of institutional arrangements as well as the new Enterprise Migration Agreements to fast track temporary skilled visas for large resource projects will provide important support in relieving these pressures on the industry and the wider economy," Mrs Ridout said.

 

Australian Constructors Association (ACA) President, Peter Brecht, said: "The survey confirms that Australia's nonresidential construction industry is set for a period of renewed strength through 2011 and 2012, driven by robust resources investment and significant planned infrastructure work.

 

"Despite the strong project pipeline, supply-side constraints are increasing with businesses experiencing worsening skill shortage bottlenecks, and intensifying pressures in the sourcing of building materials and equipment. This is being mainly driven by the heightened demand requirements in the resources sector.

 

"Of major concern, the industry is now witnessing the negative flow-on impact of rising costs for both labour and capital inputs, and consequential downward pressure on profit margins. This is a critical issue which poses risks and challenges for both the industry's growth outlook and the delivery of Australia's future infrastructure needs," Mr Brecht said.

 

Key Findings:

  • Australian construction companies are forecasting strong growth in the non-residential building industry during the course of 2011 and 2012 according to the latest Australian Industry Group/Australian Constructors Association Construction Outlook survey.
  • The total value of engineering and commercial construction work is expected to grow 9.1% (current prices) in 2011 calendar year and 11.0% in 2012.
  • Engineering construction is anticipated to grow by 12.5% in 2011 and a further 13.5% in 2012 to reach an estimated value of $82.5 billion of work (by the private sector) in 2012.
  • Resources-led projects including mining, oil and gas processing, together with transport infrastructure and telecommunications developments (including NBN) are expected to drive engineering construction growth.
  • Growth for commercial construction is expected to be more subdued with a 1.2% growth in 2011 improving to 6.0% in 2012. Private sector activity, which has been weak, is expected to underpin commercial construction growth in 2012.
  • The growth across construction is expected to put further pressure on supply constraints. Respondents are experiencing worsening skill shortage bottlenecks. 72% of businesses expect either major or moderate difficulty in recruiting skilled labour in the six months to September 2011.
  • Supply-side constraints are resulting in upward pressure on input costs.
  • The apartment building sector is expected to regain ground in 2011 following four years of decline. The value of work is expected to rise by 7.8% in 2011 and 8.2% in 2012.

Link to full report:
http://www.aigroup.com.au/portal/site/aig/constructionoutlook/