Introduction
Our latest report highlights that both Australia and New Zealand’s construction markets are experiencing challenges due to economic conditions and interest rates. While Australia focuses on public infrastructure and renewable energy, New Zealand sees mixed performance in the commercial sector.
Both countries anticipate a gradual recovery in residential construction as economic conditions improve, with Australia also addressing skilled labour shortages through government initiatives.
Construction activity moderates amid shifting sectoral demand and global economic uncertainties, adjusting government priorities.
Australia’s economy rebounded in the December quarter, recording its fastest growth in two years, driven by improved household spending and stronger exports. Gross domestic product (GDP) expanded by 0.6 percent for the quarter and 1.3 percent over the year. Positively, GDP per capita has stopped contracting, rising marginally by 0.1 percent after seven consecutive quarters of decline.
Construction activity has softened, driven by shifting sectorial demand. Public infrastructure remains a key driver of the industry, but investment seems to be easing as governments reassess the project pipeline in response to cost pressures and market capacity constraints.
Looking ahead, private sector building activity is projected to accelerate toward the end of the decade. A strong rebound in residential construction, along with growing pipelines of renewable energy projects as governments incentivise further investment in the sector, to drive this.
Improved supply chain efficiency and declining material costs
New Zealand’s economy demonstrated resilience in the December quarter, with GDP rising by 0.7 percent, rebounding from previous declines and surpassing market expectations. On an annual basis, GDP contracted by 1.1 percent, representing an improvement from the 1.6 percent decline recorded in the September quarter.
The construction sector continues to experience the effects of restrictive interest rates. Although the Reserve Bank of New Zealand (RBNZ) has initiated its rate-cutting cycle, the industry remained under pressure in the December quarter of 2024, with activity declining by an additional 3.1 percent.
Despite ongoing headwinds, housing development is expected to gain momentum in the latter half of the year as market conditions improve. The RBNZ has already reduced the Official Cash Rate by 200 basis points, with further cuts anticipated. As borrowing costs decline and housing demand strengthens, a gradual recovery in residential construction is likely.
