There is no doubt that the Construction Industry and its suppliers have felt a winter chill of late with many reporting poor revenues and frustrating delays. One needs to look no further than the share performance of players such as Adelaide Brighton, CSR and Boral to see that things aren’t exactly rosy. So what has happened and are we going to see a turn-around soon?
The short answer is that there are many factors driving activity at the moment – a falling residential market, economic uncertainty caused by the US/China trade war, Brexit, potential conflict in the Middle East and even the Federal Election closer to home.
The March quarter was certainly concerning – all major sectors were uniformly down across the major states. In actual terms, work done across Engineering Construction, Residential Construction and Non-Residential Construction was down $6.5Bn Quarter on Quarter (Dec-Mar) and the fall was consistent at approx. 12% in each sector. In pure seasonal terms this isn’t remarkable with the long term average for Q2 vs Q3 at around -10.5% however time-series analysis suggests that the expected result would be closer to $53Bn in the Quarter – an almost $3Bn shortfall (-5.5%).
We watch with interest to see the ABS numbers in June because these will give a much clearer picture of which factors has had the greatest impact. The good news, is that Q4 invariably delivers a solid improvement particularly when paired with anecdotal project updates where work is back underway after significant issues. Most notably, the Westgate Tunnel Project in Melbourne, Melbourne Metro and Sydney Light Rail.
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