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New Report on Infrastructure Market in Australia

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Feb 1 2011

Research and Markets has announced the addition of the "Australia Infrastructure Report Q1 2011" report to their offering.

Business Monitor International's Australia Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Australia's infrastructure industry.

BMI View: Australia's construction industry is entering a period of uncertainty following a strong performance in the first half of 2010. Although we continue to be optimistic for the construction sector's potential over the medium term, the near term risks cannot be ignored. For this reason, although 2010 construction industry value real growth has been revised marginally upwards (to 3.7% y-o-y), 2011 has been further downgraded to 0.7% y-o-y. Despite looming risks to Australia's construction industry, we still have an optimistic medium-term outlook.

Key Factors Driving Growth

State transport investment plans running into billions of dollars - Queensland's AUD18bn infrastructure plan; New South Wales' AUD50.2bn transport plan (over 10 years), focusing on the greater Sydney area; and Victoria's AUD38bn transport plan.
Fertile business environment, including the best project finance score of the developed countries in BMI's ratings.
Investment needs for the electricity sector running to an estimated AUD100bn between 2010 and 2020 will necessitate investment into electricity infrastructure.
Mining sector expansion based on Chinese demand for commodities, which, although expected to potentially slow, will still be substantial. Although these factors are driving our longer-term bullish outlook for Australia, with construction industry value average annual growth of 3% expected between 2010 and 2015, the short-term picture is far more volatile, with 2011 potentially a weak link for the construction industry. Short-Term Challenges
Residential housing slump: new orders in house building declined for a fourth consecutive month in September 2010.
Large interest rate hikes over recent months make loans, both project finance and mortgages, more expensive.
Strength of the Australian dollar (versus US dollar) is hitting the revenues of Australia's largest construction companies (Leighton being the best example), which could affect projects at home.
New orders for commercial construction and social infrastructure fell, as government stimulus unwinds and the private sector fails to take its place.
Failure of a number of toll roads due to inflated traffic projections could hit investment in that sector.

As a result of these near-term risks, the current outlook for Australia's construction industry is uncertain.

Although 2010 is likely to have seen a strong rebound in construction industry value from the contraction in 2009, this is unsustainable in 2011, with cracks already showing. Data for H110 shows growth of 4.3% year-on-year (y-o-y). However, we expect this to slow in H2, with full-year growth now estimated at 3.7% y-o-y. This outlook is corroborated by the most recent data from the performance of construction index (PCI) compiled by the Australian Industry Group and Housing Industry Association. The PCI has exhibited a downward trend in the second half of the year, with new orders and construction activity declining for the fourth consecutive month in September 2010. We anticipate that the worst will be felt in 2011, and therefore are forecasting growth of just 0.7% y-o-y owing to the above stated factors.

Subsectors Trend Reversal In 2009 the infrastructure industry outperformed the construction industry as a whole (which by BMI's definition is formed of two sub-sectors: infrastructure, and residential and non-residential building), driven by government stimulus measures. However, in the strong growth period of 2010 residential and non-residential building has been the driving force behind construction industry strength. The residential sector boom in the early months of the year, combined with investment in industrial construction related to the mining and energy sectors, has driven our forecast for the residential and non-residential building industry value to 4% y-o-y growth in 2010. However, with residential construction making up around 40% of this figure, the stagnation in the housing sector in late 2010, and continued weakness anticipated for 2011, will pull down 2011's growth for the subsector to a 0.15% y-o-y contraction.

In 2010 the infrastructure industry has underperformed residential and non-residential building, with growth of 3.2% in industry value expected. However, this trend will reverse back to where it was prior to the global financial crisis in 2011, with growth of 2.83% y-o-y expected. Indeed, infrastructure is forecast to outperform over the forecast period, based on state transport plans and the significant need for electricity sector investments."

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