Engineering construction to plummet by $14 billion in next two years

The value of engineering construction activity is set to fall by 20% in the two years to 2010-11 as the global recession buffets the sector, according to forecasting firm BIS Shrapnel.

The 20% fall, which equates for a drop of around $14 billion, is mainly the result of a sharp drop in the level of activity in the mining and energy sectors, which has been hit hard by a fall in demand for commodities.  

“The boom in minerals and energy demand over the last few years took construction of new mines and expansion of mines to a ridiculously highly level,” BIS Shrapnel economist Damon Roast says.

“Once that momentum stops, that’s going to account for the bulk of the downturn.”

The only bright spot for the engineering and construction sector is the huge amount of money the Federal Government is pumping into infrastructure projects in an attempt to stimulate the economy.

Yesterday, the Government announced it has signed off with state governments on a $32 billion transport infrastructure plan that will see the Federal Government invest in 120 key road and 26 rail projects over the next six years.

But hopes that governments around Australia can prop up the engineering construction sector are not without some risk.

Roast says that state government budgets are in poor shape and their borrowing capacity has diminished. That means the sector is largely reliant on the Federal Government coming up with $20 billion in infrastructure funding over the next six years.

“If that money doesn’t get found, there is a definite risk that the Federal Government’s contribution might be limited,” Roast says.

While BIS Shrapnel predicts a 2012 or 2013 turnaround, Roast worries that any recovery will expose bottlenecks and capacity constraints that have particularly plagued the mining sector during the last five years.

“While falling demand for commodity prices have fixed these bottlenecks for now, as the economy recovers and demand increases, the problems will resurface.”

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