The Australasian construction activity slowed significantly in the first half of 2022, due to rising building material, energy and wage costs, and labour shortages. A sharp increase in borrowing costs has also disrupted construction works and the flow of new investment into the sector. As a result, GlobalData, a leading data and analytics company, has revised down its forecast for the Australasian construction output to a contraction of 2.8% in 2022 from its prior projection of a 4.1% annual growth.

According to GlobalData’s report, ‘Construction Market Size, Trends and Growth Forecast by Key Regions and Countries, 2022-2026’, the Australasian construction industry is forecast to record a successive contraction in 2023, of 1.5%, mainly due to a continued decline in Australian construction output.

Willis Rooney, Economist at GlobalData, comments: “The Australian construction industry is expected to contract by 3.3% in real terms in 2022, before recording a successive contraction of 2.7% in 2023. The value of construction work completed contracted sharply in Q2 2022, by 4.3% year-on-year (YoY) and 3.8% quarter-on-quarter (QoQ). Weakening leading indicators, including the value of building approvals that fell by 16.4% YoY and 0.8% QoQ in Q2 2022, lend further support to our forecast.”

Rising project costs led by labour and skill shortages have already resulted in some projects being delayed in New South Wales, most notably the $10.9 billion Beaches Link development and the $7.9 billion M6 Motorway expansion.

Rooney continues: “A significant rise in project costs due to an increase in building material and energy costs, and skill and labour shortages, is expected to weigh on construction activity and new construction investment in the second half of this year and into 2023.”

Further, the continued tightening of monetary policy by the Reserve Bank of Australia (RBA) is expected to exert downward pressure on the construction demand in the country. The RBA has increased its cash rate target by 250 basis points since May 2022, and is expected to continue tightening, given the 32-year high consumer inflation recorded in Q2 2022.

Rooney adds: “As interest rates rise, increased borrowing costs and slowing economic growth are expected to deter new private construction investment in Australia.”

The construction industry in New Zealand is projected to contract by 1.0% in 2022, as the industry struggles from similar issues faced by the Australian construction industry.

Rooney concludes: “The New Zealand construction industry was weak in H1 2022, with activity contracting by 2.5% YoY. Leading indicators suggest construction activity may improve in the second half of the year, though downside risks to the outlook remain significant.”