Australian building, construction industry to see slow recovery

The Australian building and construction industry will see a mixed recovery over 2015-16 after a number of challenging years, according to Master Builders Australia (MBA) forecasts released Monday. While the forecasts predict a positive growth for the industry, MBA reports that the current economic climate is creating headwinds that may impede the timing and strength of recovery. There's light at the end of a very long tunnel, but no sign of a return to boom era levels, said MBA Chief Economist Peter Jones. "Master Builders ... reinforces its call for ongoing microeconomic reforms at all levels of government in order to underpin the length and strength of the recovery. This will allow the industry to enter a sustained recovery and reclaim its role as one of the economy's key drivers," Jones said. The residential building sector is forecast for strong improvement, as low interest rates release pent-up demand after a long period of underbuilding during a surge in population growth, MBA reports. After marginal growth in 2012-13, the value of residential building work is predicted to grow from 46.2 billion Australian dollars (46.1 billion U.S. dollars) in 2012-13 to 60.9 billion Australian dollars (60.7 billion U.S. dollars) over 2015-16. "The stronger performing states are forecast to be Queensland, New South Wales and Western Australia. "The key risks to the forecasts are frail consumer confidence, economic uncertainty, asset price volatility and ongoing softness in the labour market," said Jones. Despite signs of a peak in the investment boom, the engineering construction sector is expected to remain strong, with activity increasing to 122.1 billion Australian dollars (121.7 billion U.S. dollars) in 2012-13, before falling by 12 percent over the next three years to 108 billion Australian dollars (107.7 billion U.S. dollars). "After very strong growth, engineering construction activity in the Northern Territory, Western Australia and Queensland are forecast to fall back, albeit remaining at extremely high levels in an historical context. Victoria and Tasmania look set to benefit from stronger infrastructure spending," Jones said. On the downside, non-residential building work is predicted to decline in 2012-13, followed by a modest growth in the following years -- driven by commercial and industrial building sectors, but hampered by weakness in social and institutional sectors and education-related building. MBA reports that the non-residential sector contracted severely with the end of GFC stimulus programs in the second half of 2012. And while the value of work is expected to improve to 33.9 billion Australian dollars (33.8 billion U.S. dollars) in 2015-16, levels are not expected to rise above that of 2009-10. "For non-residential building, strongest performing states are forecast to be New South Wales, Queensland and Victoria, with industrial, retail and office building leading the way," said Jones. "The key headwinds and risks are poor cash flows, low margins and tough lending criteria. Investor confidence also remains low reflecting current economic conditions," he added. All in all, while some positive growth is expected, economic conditions such as the high Australian dollar, fiscal consolidation and the soft labour market will impact growth across different building and construction sectors, Jones said. "The forecast recovery in the non-mining related parts of the building and construction industry is mixed. Performance by sector and state is highly variable, with Queensland, New South Wales and Western Australia set to enjoy better times after a number of challenging years," he added.