Construction activity in Australasia (Australia and New Zealand) slowed in the first quarter of this year, with outbreaks of the Omicron variant, flooding in eastern Australia, and rising construction material and labor costs disrupting construction works. As a result, GlobalData, a leading data and analytics company, has revised down its forecast of Australasian construction output growth from its prior projection of a 4.6% annual growth, to 4.1% in 2022.

According to GlobalData’s report, ‘Construction Market Size, Trends and Growth Forecast by Key Regions and Countries, 2022-2026’, the Australasian construction industry is set to record a real compound annual growth rate of 2.8% between 2023 and 2026.

Willis Rooney, Economist at GlobalData, comments: “The Australian construction industry is expected to expand by 3.7% this year, primarily supported by a significant pipeline of infrastructure works and projects generated by Labor’s Powering Australia Plan, which aims to reduce Australia’s carbon emissions to 43% below 2025 levels and increase the share of renewable energy in the National Electricity Market to 82% by 2030.”

Significant investments as part of Powering Australia include the $15 billion Rewiring the Nation policy, which aims to accelerate the construction of high-voltage infrastructure, allowing Australia’s electricity grid to accommodate the significant planned increase in large-scale renewable energy.

Rooney continues: “However, with the Australian economy at near full employment and construction activity in the residential and infrastructure sectors already intense, a further increase of construction demand in the civil engineering sector is likely to lead to an increase of aggregate wages and exacerbate long-standing labor and skill shortages.”

Rising project costs due to labor and skill shortages have already resulted in the delaying of some projects in New South Wales, most notably the $10.9 billion Beaches Link development and the $7.9 billion M6 Motorway expansion.

Rooney concludes: “The construction industry in New Zealand is projected to expand by 5.5% this year, supported by an improvement in economic conditions, government investment on public infrastructure and an improvement in service sector activity as borders reopen. While the activity in the construction industry did slow to a marginal contraction of 0.4% YoY in Q1 2022, this was in part due to high base effects following the 10.6% YoY growth recorded in Q1 2021. Much like in Australia, however, tight labor conditions, with unemployment at record lows, pose a significant risk to industry performance in the short-term.”