Industry Trend Analysis - Commodities Support Construction Recovery, But Housing Risks Remain - FEB 2018

BMI View: Stabilizing commodity prices will help pull Australia ' s construction industry out of its three-year-long contraction in 2018, but the overall growth outlook remains tepid given the country ' s relatively saturated construction and infrastructure sector. At the same time, high property prices continue to pose a downside risk, especially to residential buildings construction activity in the near term.

We have adjusted our historical data and forecasts for Australia's construction and infrastructure industry, taking into account more-recent datasets and forecasts from our Country Risk and Commodities teams. We now expect the construction industry to grow by 0.9% in real terms in 2018, recovering from an annual average of -2.3% between 2015 and 2017. We believe that recovering commodities prices will help pull the construction industry out of its three-year period of contraction in 2018, with long-term growth supported by robust urban population growth trends and pro-infrastructure development policies. Although the rapid rises in housing prices since 2013 have fuelled worries of a property market bubble, we note that population growth in Australia's major cities remains strong and will support long-term growth in housing construction activity over the coming decade ( see ' Residential Construction To Remain Stable Amid Bubble Worries ' , December 19 2017). At the same time, a narrowing fiscal deficit will lend support to government infrastructure initiatives, though our Country Risk team has also highlighted that fiscal consolidation may not occur as quickly as anticipated by the government ( see ' Fiscal Deficit To Narrow But Not As Fast As Suggested By FY2017/18 MYEFO ' , January 8).

Stabilising Commodity Prices

Recovering from Contraction
Australia - Construction Industry Forecasts
e/f=BMI estimate/forecast. Source: Australia Bureau of Statistics, BMI

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