Australasia construction output to contract by 4.8% in 2020 due to COVID-19, says GlobalData

Even prior to the COVID-19 outbreak, the construction industry in Australasia was weak, dragged down by a weak residential market in Australia. The COVID-19 outbreak and the consequent social distancing norms, lockdowns and weakening macroeconomic conditions have further exacerbated the challenges in the residential market while also leading to a contraction in New Zealand construction industry. Therefore, construction output in the region is expected to contract by 4.8% in 2020 says GlobalData, a leading data and analytics company.

However, the industry is expected to bounce back in 2021 led by government investments in the construction industry to stimulate the economy and boost employment.

In Australia, the construction industry was designated as an essential service and exempted from the lockdown, which led to the industry recording a contraction of only 2.2% in Q2, comparatively better than that of 4.4% in Q1. This was driven by an uptick in the engineering construction segment, which recorded a growth of 2.2%, while the non-residential buildings segment recorded growth of 6.2%. On the other hand, the residential buildings sector has remained weak, recording a year-on-year (YoY) contraction of 12.1% in Q2 2020, following a contraction of 10.2% in Q1.

New Zealand took a different approach, imposing a strict stage-4 lockdown of more than one month from March to April, when construction industry came to a complete halt except for essential segments. Consequently, New Zealand’s construction industry contracted by 28.6% in real terms in Q2 2020, following a contraction of 5.2% in Q1, dragging down the growth rate for the first half of the year to 17.0%.

Dhananjay Sharma, Construction Analyst at GlobalData, comments: “Both Australia and New Zealand are adopting a similar approach of investing in the construction industry to stimulate the economy and boost employment. The New Zealand government has already released a list of 147 shovel-ready projects requiring funding of US$1.5bn while Australia too announced a US$1.1bn investment in ‘shovel-ready’ projects in June.”

In Australia, the residential buildings sector will remain in the doldrums in 2020, given the significant declines in buildings approvals in 2019, increase in unemployment levels and weaker economic activity. However, in the medium to long-term, growth will be driven by increasing migrant population, historic low interest rates and a fall in property prices. Infrastructure is expected to be a major driver, through the ‘Infrastructure Investment Program’, under which many transformational projects are planned to be built over the coming years. This is expected to deliver US$57.5bn in infrastructure funding up to 2026/27, including funding of US$7.7bn from ‘National Rail Program’ and equity for other major infrastructure investments.

New Zealand too has earmarked investments in the infrastructure segment through the ‘Provincial Growth Fund infrastructure investments’ as well as the ‘New Zealand Upgrade Programme’ announced in late 2019. The investments, coupled with the shovel-ready projects, as well as the ‘Construction Accord and Three Water Reforms programme’ are expected to facilitate higher investments over the forecast period and support the construction industry.

Sharma concludes: “While infrastructure is expected to revive the construction industry growth in the short-term and would continue to drive growth over the long-term period, it would be boosted by a turnaround in the residential segment after the COVID-19 is contained. The region had witnessed increasing migrant population prior to the pandemic, which is likely to resume post the outbreak and drive growth in the long-term.”

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