INTRODUCTION
Facing economic headwinds
Our latest report highlights that both Australia and New Zealand’s construction sectors are facing economic headwinds, shifting interest rates and global uncertainty. While Australia sees momentum in public infrastructure, energy and residential recovery, New Zealand’s market is stabilising amid easing cost pressures and strengthened policy support.
Both countries are continuing to face labour shortages, but government initiatives, infrastructure investment and interest rate reductions are helping to support a more positive construction outlook.
Public sector investment underpins Australia’s construction growth
Australia's economy expanded by 0.2 percent in the March quarter and 1.3 percent over the year, falling short of market expectations. Public spending recorded its largest negative contribution to growth since the September quarter of 2017 while extreme weather disrupted mining, tourism, and shipping. Public investment declined as major infrastructure projects concluded, and new developments were delayed. Rising geopolitical tensions in the Middle East have added to global uncertainty, raising concerns over oil supply and inflation.
Construction activity across Australia remains broadly consistent with previous quarters. Public expenditure continues to underpin growth in most markets, with a surge in health-related investment driving a near-term spike in activity. A sectoral shift is emerging in the non-residential private sector as industrial development moderates and data centres remain strong.
Looking ahead, energy and utilities projects are expected to dominate the construction pipeline by the end of the decade, particularly now that there is greater policy certainty around net-zero commitments following the federal election. The outlook remains positive, particularly in regional areas and infrastructure-linked segments.
Elevated construction costs remain a challenge in New Zealand
New Zealand’s economy expanded by 0.8 percent in the March 2025 quarter, outperforming market expectations and marking the second consecutive quarter of growth. Although annual GDP contracted by 0.7 percent, the quarterly trend indicates a slow recovery is in progress. The Reserve Bank of New Zealand (RBNZ) has signalled a slightly deeper policy easing cycle than projected three months ago, citing increased economic risks from global headwinds.
The Reserve Bank lowered the Official Cash Rate to 3.25 percent at its May 2025 policy meeting, aligning with expectations to support economic activity amid subdued growth and declining inflation. Elevated construction costs remain a challenge, but government reforms, infrastructure investment and interest rate reductions offer stability.
Residential construction is driven by demand for affordable housing and urban growth. Office refurbishments are rising in Auckland, while school projects and housing plans are being reassessed. While construction activity remains under pressure, policy adjustments and targeted sector investments are expected to improve market conditions in the medium term.
Contents
Follow us
