Australian construction firms expect subdued year-end

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The latest illion Business Expectations report revealed a sharp deterioration in Q4 2019 forecasts, where a recent survey of over 1,200 business owners and executives found businesses in the construction sector are expecting sharp declines across their sales, profit, employment and capital investment figures for Q4 2019, compared with Q4 2018.

As one of the biggest employers in the country – comprising more than 1.1 million Australians – a downturn in the construction sector will have a significant impact on the wider economy.

“There is no question that things are deteriorating in the construction sector,” said illion senior economist Stephen Koukoulas. “By the end of 2019, residential construction activity is likely to weaken further, while the pipeline of new activity for the early part of 2020 will also be reduced.

“With total construction making up more than 7% of GDP, the recent slump in the industry will not only undermine bottom-line GDP growth, but will almost certainly see job losses.

“However, despite the weakness in new-dwelling construction, house prices are clearly recovering from a two-year slump. A combination of low interest rates and favourable conditions could spark further strong increases in prices over the next few years.”

Across other sectors, the report revealed a similarly bleak Q4 outlook from retail and services businesses, but manufacturers are forecasting slight improvements in performance, despite disappointing Q3 figures. Businesses across all sectors also expressed mild optimism over the elections earlier this year, with more than a third expecting a positive impact from the Coalition’s election win, compared with only 8% forecasting a negative impact. More than half did not expect any changes.

Highlights from the report:

  • Expected and actual indices for the construction sector are down significantly, both on a quarterly and year-on-year (YoY) basis.
  • The overall Expectations index – which represents the combined outlook across all business sectors – improved by 15.4% from the previous quarter, but fell 5.6% YoY.
  • The Actuals index – which measures performance for Q1 2019 – was down 2.9% compared with previous quarter, while the YoY figure plummeted by nearly 60%.
  • Selling prices are expected to drop over Q4, with both expected and actual indices experiencing double-digit declines.