27/04/2009 - 10:06

WA engineering work to slip 15%

27/04/2009 - 10:06

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Sharp increases in oil and gas works will not offset WA's engineering construction activity which is forecast to fall 15 per cent over the next two years, an economic forecaster says.

Sharp increases in oil and gas works will not offset WA's engineering construction activity which is forecast to fall 15 per cent over the next two years, an economic forecaster says.

In its Engineering Construction in Australia 2008/09 - 2022/23 report, BIS Shrapnel said the decline comes from an extraordinary high base as oil and gas contracts fail to compensate for the winding down on major iron ore expansions.

However, BIS has forecast another strong upswing in 2010/11.

Nationally engineering construction activity is tipped to fall by 20 per cent over the next two years despite the extra stimulus from federal government funding for capital works/

BIS said the projected increased in federally funded works will not fully offset the fall in private sector construction, leading to a $14 billion drop in overall activity by 2010/11.

"While private work will jump four-fold from trough to peak, public activity will only jump two-thirds to be just 36 per cent of all activity in 2008/09," BIS Shrapnel economist Damon Roast said.

BIS Shrapnel's report, Engineering Construction in Australia 2008/09-2022/23, said a recovery in engineering construction would start in 2012 or 2013 if credit markets were fixed and major economies emerged from recession.

It also said lower prices for commodities would hit the former boom states hard, with construction activity in the Western Australia engineering sector forecast to fall 35 per cent in the three years to 2011/12, while Queensland is set to be down 30 over the same time.

Engineering activity is forecast to fall by 15 per cent in NSW.

Victoria and South Australia had a positive outlook for activity over the three years, BIS Shrapnel said.

Mr Roast said engineering construction was strong in 2008/09 due to the long lead times for many projects.

"In other words, much of the work now underway was proposed in far rosier economic times and our forecast is that growth over 2008/09 will be about 17 per cent," Mr Roast said.

Engineering construction, particularly in the mining industry, will start to fall this year and keep declining until 2010/11, BIS Shrapnel forecasts.

Mr Roast said engineering construction activity in the private sector nearly tripled in the eight years to 2008/9, with most of the building in new or expanded mines.

With demand for resources slumping as the global economy contracts, new mining projects were now in doubt, Mr Roast said.

"The global downturn and credit issues will decrease private activity by 30 per cent by 2010/11 and this weakness will remain until credit issues are resolved," he said.

Australia's economy would contract 1.4 per cent this year and would grow by 0.6 per cent in 2010, the International Monetary Fund said on April 22.

 

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