Cost escalation is a highly important variable in determining the feasibility of large infrastructure projects. Strong growth in construction costs during the boom years has now given way to weaker cost growth and, importantly, lower tender prices, providing more “bang for the infrastructure buck”. But Australian governments and construction contractors need to be aware of the risks of a return to stronger growth in construction costs, particularly in our cities.
An oversupply of renewable energy certificates, coupled with heightened uncertainty caused by renewables policy changes, has stymied the development of new large scale wind and solar generation projects in Australia. This situation is forecast to reverse over the next few years, as certificates generated by the boom in small scale renewables projects are eventually absorbed. Certificate prices have already increased and investment will be next. But it is highly doubtful the 2020 Renewables Energy Target – requiring $10 billion in new investment – will be met in time.
Road construction activity has fallen by over 20 per cent in real terms since its peak in 2011/12, amplifying the downturn in overall engineering construction work. But the outlook for this sector is highly positive — in contrast to the overall construction market.
The mining investment boom was a key driver of growth for the Australian economy, and the corresponding bust is now a constraint to growth. With further falls in commodity prices, and gathering gloom on the prospects for the global economy, 2016 is shaping up as an extremely challenging year for the Australian mining industry and the broader economy.
With the resource boom states of Western Australia and Queensland facing a free-fall in construction work, New South Wales is supposed to regain the mantle of being Australia’s biggest construction state. Only, it hasn’t happened just yet.