Engineering construction activity to plunge 20%: BIS

BIS economist Damon Roast said engineering construction activity would drop by 20% by the end of the 2010-11 financial year.Roast estimates the drop will cost the sector around $14 billion in inflation-adjusted prices during the period.The fall will be in privately funded projects, he said. Although government-funded infrastructure projects were expected to increase, it would not be enough or happen soon enough to ward off a decline in total activity.“The continued strong growth so far this year is largely due to the long lead times for many projects,” he added.“In other words, much of the work now underway was proposed in far rosier economic times and our forecast is that growth over 2008-09 will be about 17 per cent.”The mining industry will lead the engineering construction sector into decline in the second half of this year, continuing through to the 2010-11 fiscal year, according to Roast.“The slump in demand for resources means the next round of mining projects is in doubt, with some still-feasible projects already being delayed due to companies’ financial problems.“However, the global downturn and credit issues will decrease private activity by 30 per cent by 2010-11 and this weakness will remain until credit issues are resolved.”As the credit crisis eases and major economies surface from the global recession, the engineering sector is expected to pick up again, which Roast estimates will happen around 2013.A recovery in China’s economy would stimulate a number of resource projects, such as BHP Billiton’s proposed $6.7 billion Olympic Dam expansion, he said.Delayed economic recovery would lead to a pent-up need for later activity, because Australia’s boom was clipped in full flight by the global financial crisis.“As a result, when recovery across the economy eventually does take place, there will not be the usual amount of excess capacity,” Roast added.“When one also considers that long-term under-investment remains in many sectors, as well as the need for investment due to population growth, ageing assets and climate change, it becomes clear any extended weakness only increases the need for greater activity into the late 2010s.”The economic forecaster has predicted Queensland and Western Australia will be hit the hardest by falls in engineering construction activity, with drops of 30% and 35% respectively over the next three years.However, Victoria and South Australia will stave off major declines due to vital infrastructure projects like road and rail, water, sewerage and electricity, Roast said.

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