Engineering construction activity is set to decline 15% over the next two years despite Federal Government stimulus and the likely start of work on the massive Gorgon LNG project, according to industry analyst and economic forecaster, BIS Shrapnel.
In an update to its Engineering Construction in Australia, 2008/09 — 2022/23 report, BIS Shrapnel says the fall in work done will be driven by a 25% decline in privately funded work over the next two years.
The company warns that as the current round of projects — predominantly in mining and related sectors — are completed, there will be fewer projects ready to take their place.
“While the outlook for the global economy has improved during 2009, we are still forecasting a substantial setback to minerals investment over the next one to two years given the ongoing credit squeeze and global slump in industrial production,” BIS Shrapnel’s Infrastructure and Mining Unit Senior Manager Adrian Hart said.
“Even including work starting on the Gorgon LNG project in the first half of 2010, mining and heavy industry construction is set to decline by one-third over 2009/10 and 2010/11.”
The prediction comes after the forecaster announced at its annual Economic Outlook briefing that a severe decline in business investment, particularly in the mining sector, will make the next twelve months the Australian economy’s most difficult phase of the Global Financial Crisis.
Apart from mining and heavy industry, BIS Shrapnel is forecasting a slump in privately funded work over the next two years for other infrastructure sectors including roads, railways, ports and electricity.
Hart says the coming downturn in private investment justifies the need for governments to stay the course on their own spending and investment plans for at least for the next two years.
“There seems to be a perception that, having enjoyed an unprecedented boom over the past eight years, private funding for infrastructure will simply accelerate again from here, despite an ongoing financial crisis and the biggest global economic slump since World War II,” Hart said.
“To the contrary, the next 12 to 18 months are going to see a sharp setback to privately funded construction work — both in engineering construction and non-residential building — as the fallout from the financial crisis comes through.”
Hart says that given in 2008/09 the private sector funded nearly two-thirds of all civil construction activity, which was worth around $44 billion in constant 2006/07 prices, declining activity from this sector will have substantial impact on overall activity.