Construction activity to fall by $12bn

A construction forecasting body says Australia-wide activity in the sector is expected to slump by $12 billion over the next two years while construction in the mining industry is expected to plummet 60 per cent.

The Construction Forecasting Council (CFC) has also tipped more than 75,000 jobs in the industry will be lost due to a sharp fall in building activity.

The CFC forecasts a sharp decline of 22 per cent in overall infrastructure spending in 2010/2011, following a 1 per cent contraction during 2009/2010.

Mining-related construction is expected to climb 10 per cent in fiscal 2009 at $21.3 billion and rise 1 per cent the following year to $21.5 billion.

However, the CFC has forecast construction in the mining sector to fall 59 per cent in fiscal 2011 to $8.8 billion.

The CFC forecasts, which are prepared for ACIF by KPMG Econtech, assume a 1.2 per cent fall in GDP over the next 12 months and an increase in unemployment levels to 7.1 per cent.

The announcement is below:

More than 75,000 construction jobs could be lost due to a sharp fall in building activity, according to the latest forecasts from the Australian Construction Industry Forum's Construction Forecasting Council (CFC).
Despite a swift upturn in residential building and the federal government's spending boost, construction industry cash flow is forecast to contract by almost $12 billion over the next two years.
"Spending on residential building is forecast to turn around in 2009/2010, following a 4% fall in the 2008/2009 financial year," said CFC Chair Peter Verwer.
"The first home owners grant and government stimulus packages have halted the recent decline in residential building expenditure.
"The CFC predicts a very strong recovery in stand-alone housing and in the alterations and additions market, driven by pent-up demand, low interest rates and net population growth.
"Apartment building is more likely to remain in the doldrums until 2011/2012, with a 15% fall in spending forecast," he said.
The CFC says the outlook for commercial building - offices, shopping centres, hotel and industrial facilities - is grim.
"Private spending on commercial property is not forecast to fully recover for three years," Verwer said.
"However, the overall picture for non residential building is likely to be offset by a boost to government investment in schools and hospitals."
"2011/2012 will see a sharp improvement in private and commercial property spending following a contraction of nearly 40% on current construction expenditure.
The CFC forecasts a sharp decline of 22% in infrastructure spending in 2010/2011, following a 1% contraction during 2009/2010.
Infrastructure spending is slated for a cyclical downturn following unprecedented levels of activity, particularly mining-related construction, which is expected to fall by 60% in 2010/2011.
"Mining-related construction spending is quite solid for the next 12 months; however, weakening commodity prices are expected to result in the postponement of very large projects and a sharp drop in construction activity in 2010/2011," said Verwer.
The CFC forecasts, which are prepared for ACIF by KPMG Econtech, assume a 1.2% fall in GDP over the next 12 months and an increase in unemployment levels to 7.1%.
"However, while the economic downturn has dampened demand, the market fundamentals are quite different from the recession of the early 1990s," said Verwer.
"There is little evidence of the oversupply that delayed the recovery of construction spending following the last recession.
"Indeed demand for residential property is strong and spending on commercial buildings is slightly below the historical average," he said.
"The flow of new capital will directly determine the shape of the construction industry recovery - which means debt markets will need to recover quickly if job losses are to be contained, given the Government's limited capacity to continue with pump-priming programs."
ACIF's Construction Forecasting Council (CFC) produces twice-yearly forecasts of building and construction activity, covering short, medium and long-term prospects for the industry.
These forecasts are based on modelling of the economy by KPMG Econtech, and include short-term to long-term forecasts (10 years). The CFC's latest forecast figures have been derived from the December 2008 quarter National Accounts and Australian Bureau of Statistic building approvals to the end of January.