Introduction
Our latest report finds that there is a mixed outlook for Australian construction markets, while in New Zealand, the construction sector is navigating a period of increased uncertainty. Across the region, skilled labour shortages continue to persist and contribute to higher construction costs.
Australia maintains a strong pipeline of public sector projects
Economic activity is expected to remain subdued in Australia. While annual inflation eased to 3.6 percent in March, consumer prices increased by 1 percent over the quarter, up from 0.6 percent in the December quarter. This signals that cost pressures in the economy remain elevated, with higher labour costs, insurance costs and rents continuing to see strong price growth. While this result is unlikely to change the near-term outlook for interest rates, further signs of sticky inflation could remove any potential rate cuts from the table for some time.
The public sector continues to maintain a strong project pipeline, supported by an increase in infrastructure construction activity, particularly across the renewable energy and utilities sectors. The near-term outlook for the private sector has softened, but a steady return in new investment is expected from 2025 onwards, once interest rates are lowered.
Skilled labour shortages remain a key challenge faced by the Australian construction industry with labour costs driving up construction costs. This is particularly evident in Queensland and Western Australia, where market capacity constraints are already being felt and further tightening is expected. Stronger cost escalation is therefore, expected to continue across these markets, while others experience a short-term easing.
Short-term softening across New Zealand’s construction sector as economic challenges weigh in
New Zealand’s economy is in recession, largely due to the Reserve Bank of New Zealand's (RBNZ) aggressive interest rate hikes aimed at curbing inflation. Despite inflation easing, it remains sticky and above the RBNZ target rate, reducing the likelihood of rate cuts in 2024.
Strong population growth may be masking the true extent of the recession which could otherwise have resulted in a more severe setback. Despite high levels of inbound migration, there remains an imbalance of skills across the region, which is sustaining skills shortages. The government is responding to this by tightening entry rules and attracting skilled migrants to sectors that are facing shortage.
The economic downturn and associated pressures are now materialising in New Zealand’s construction sector, with activity slowing across most sectors. Major projects currently underway in Auckland and Christchurch are sustaining activity across the region, albeit at a subdued level. Despite this, the imbalance of skills across the region is keeping pressure on resources with skills shortages persisting.
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