While mining-related activity could decline further the prospects for growth in other parts of engineering and non-residential construction are improving.
- Construction is a significant contributor to the Australian economy, accounting for approximately 9% of GDP. 2017 is expected to be the final year of contraction in non-residential and engineering construction before modest growth returns in 2018.
- While mining-related activity could decline further this year, the prospects for growth in other parts of engineering and non-residential construction are improving and expected to outweigh any further contraction in mining related work. Engineering construction output – particularly infrastructure-related projects for road and rail, largely located on the east coast – is forecast to increase about 3.5% in 2018.
- Residential construction growth is expected to level off or slightly contract in 2018, aslenders are tightening terms and conditions for borrowers, particularly investors. An increase in the number of apartments and decrease in Chinese buyers is also playing a part in the slow price growth.
- The “two speed economy” is supported by the differences in performance and outlook of the construction market in the various Australian regions. Queensland, Western Australia and the Northern territory are all considered to be so-called “mining states” and are forecast to account for about AUD 7 billion decrease in construction activity in 2018. On the other hand, the South Eastern regions are forecast to maintain the present levels of activities.
- Payments in the construction sector take 30-60 days on average, and the level of non-payment notifications remains high. The number of credit insurance claims is expected to remain elevated in 2018.
- Our underwriting approach remains cautious, particularly for small businesses, the mining-related segment and the Western Australia and Queensland markets generally. Overall, construction sector performance still needs to be closely monitored given its volatility.