Engineering Construction Set To Decline With Policy Uncertainty Around NEG


Author: BIS Oxford Economics

Engineering construction posts strong growth in 2017/18, but setbacks expected in renewable energy and telecoms.

  • Growth in engineering construction is unsustainable according to BIS Oxford Economics, with one-off factors and policy uncertainty surrounding the National Electricity Guarantee to drive downturns in electricity, oil and gas, and telecoms – offsetting further growth in transport construction and keeping total activity trapped in the $80-90bn per annum range over the next five years.
  • ABS Preliminary Construction data released today shows engineering construction rose 21% to $105bn in 2017/18 and quarterly activity was up 8% to $24.6bn in the June quarter.
  • Strongest state growth in 2017/18 has been Victoria (+31%), NSW (+25%) and Western Australia (+28%), but the result for WA is abnormally affected by large LNG module imports that the ABS classifies as construction
  • BIS Oxford Economics estimates that the strongest growth sectors over 2017/18 were rail (+47%), electricity (+46%), water (+42%), oil and gas (+27%) and roads (+15%).

ABS Preliminary Construction data shows the engineering construction market grew strongly in 2017/18. But falling energy and telecoms work will crimp growth from here, according to leading construction industry analyst and economic forecaster, BIS Oxford Economics.

“The figures released today by the ABS show an engineering construction market in rude health during 2017/18,” said Adrian Hart, Associate Director of BIS Oxford Economics.

“While the strongest growth has occurred in Victoria and New South Wales, all states barring Tasmania and the Northern Territory saw good growth in engineering construction work done over 2017/18.

“Furthermore, the growth in 2017/18 was fairly evenly distributed by the public and private sectors, with 19% growth in publicly funded work and 22% growth in privately funded work.

“Unfortunately, this is likely to be about as good as it gets. While we have to wait until late September for the detailed June quarter engineering construction data, BIS Oxford estimates that the strong growth in 2017/18 was driven heavily by new renewables construction in electricity, as well as oil and gas, water, railways and roads.

While the outlook for transport construction remains positive, BIS Oxford Economics has significant concerns over the outlook for utilities investment and construction.

Private investment in renewable generation has propelled electricity engineering construction above $11 billion in 2017/18. However, with fewer projects in the pipeline than currently underway – and current energy policy failures likely to deter new investment – BIS Oxford Economics expects electricity construction to slump back towards $8bn by 2022/23.

“While we had expressed there was upside to our forecasts for electricity if the National Electricity Guarantee proceeded, this upside has now all but evaporated,” said Hart.

“Combined with heavy declines in oil and gas as the LNG boom unwinds, and falling telecoms construction as the NBN moves to completion, total engineering construction work done is forecast to slip back under $90 billion this financial year, and fall lower again over 2019/20 and 2020/21.”


Figure 1: Engineering Construction Work Done by Funding Source




Figure 2: Utilities Engineering Construction Work Done



BIS Oxford Economics applies local methodologies and international insights within a fully consistent modelling framework to help clients better understand the markets and sectors in which they operate, by providing reliable and detailed market data, analysis of developments and drivers, and thoroughly researched forecasts.

Operating in Australia since 1964, BIS Oxford Economics provides strong sectoral coverage of the Australian economy, as well as expanded analysis across Asia with a specific focus on building, residential and commercial property, infrastructure and mining, transport, building materials, household appliances and products, forestry, and paper and packaging.

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