Introduction
Our latest report finds that Australia and New Zealand’s construction markets are being supported by public sector investments, while private sector activity remains subdued. A significant increase in private sector investment is needed if housing and clean energy targets are to be met, but this is being held back by high construction costs and high interest rates.
Transport and energy infrastructure sectors drive strong activity
Ongoing inflationary pressures are prolonging high interest rates, and suppressing demand across the Australian economy. Economic growth was stagnant, with output increasing by just 0.1 percent over the quarter.
Overall, the construction outlook in Australia remains mixed and largely unchanged from previous quarters. Capacity constraints have eased in some regions, while others remain tight. Queensland remains in the spotlight with a significant pipeline of health projects and preparations for the Brisbane 2032 Olympic and Paralympic Games.
Public sector investment in the transport and energy infrastructure sectors will continue to drive strong activity in the near term. The 2024-2025 Federal Budget maintains its commitment to deliver the AU$120bn pipeline over ten years, with an additional AU$16.5bn allocated to various projects over the period. State government spending in transportation, clean energy, social infrastructure and housing will also support activity over the medium term.
Annual wage growth reached 4.1 percent in March, an increase of 0.8 percent from the previous quarter. The labour market is loosening but at a slow pace, which continues to exert upward pressure on labour costs amid persistent shortages. The Reserve Bank of Australia (RBA) is closely monitoring wage-price movements to assess potential contributors to higher inflation and to determine if a response is necessary.
New Zealand inflation edges closer to target
Despite performing better than expected this quarter, the New Zealand economy remains in challenging territory. Labour market conditions are increasingly reflecting the weaker economy, while soft net migration drags on demand. However, inflation continues to ease and edges closer to target range, prompting the Reserve Bank of New Zealand (RBNZ) to cut the cash rate by 25 basis points for the first time since March 2020.
The New Zealand construction market remained relatively unchanged over the second quarter of 2024. Cooler market conditions, driven by restrictive policies and a sluggish economy, have dampened new investment in the sector.
The new government is committed to significantly increasing public housing supply, with a focus on regional areas rather than just metropolitan centres. The drive towards renewable energy by 2030 and net-zero emissions by 2050 is expected to spur substantial investments in the energy sector. Further rate cuts and easing cost-of-living pressures should support a steady return in investment from the private sector over 2025.
