2020 has certainly thrown the world a curve ball and the global situation has never been so tenuous economically since the Great Depression as a result of the current pandemic. Coupled to this is possibly the most uncertain geopolitical situation since the beginning of the last world war or at minimum since the Cold War.
This is a situation that most of us haven’t seen in our lifetimes and this new world order or rather disorder is going to take its toll and be felt for years to come. How the coronavirus scenario plays out in the foreseeable future is still open to conjecture and the political situations in China and USA as well as racism and social unrest particularly in the latter is a real cause for global concern.
The portents for economic, social, and political problems especially in the developed world have been coming for the last few years, and much has been documented regarding the situation long before the pandemic hit like an express train. Ageing populations and demographics have also been impacting on the GDP’s of many of the developed world economies for years with governments scrambling to provide stimulus to shore up their positions with limited success.
In spite of all this Australia and also our close friend and neighbour New Zealand are in a better position and poised to bounce back better than almost anywhere else in the world and this will possibly play out very significantly in the medium term, say the next two to three years.
We are in comparative positions of economic strength, in spite of the massive stimulus that the governments have poured in to keep our countries alive, we have stable and well structured democratic governments which by and large work harmoniously together with and for the people, we have world class health and education facilities, excellent natural resources, proximity to large developing south- east Asia markets , capacity to ramp up our own manufacturing and great prospects in agriculture.
We have a few headwinds to work through such as our reliance on China, overvalued housing in the capital cities, and the need for proper water management and renewables; however on the whole we are very well placed to grow strongly from 2021 onward and the IMF has tipped us to have a V like recovery.
Forecast for the construction sector.
The construction sector is the second highest contributor the GDP after the resources sector and has the largest single number of employees with over 1.2million workers plus 440,000 indirectly involved in supporting the industry.
Because of its importance to the economy the government is working on various stimulus packages for the housing industry and fast-tracking approvals of shovel ready infrastructure projects throughout the country.
The next few months will be tough and job losses are inevitable as the current pipeline slows, however the government intervention should at least stem the tide somewhat.
Where it starts to get interesting is into next year, when travel and immigration is expected to pick up again. This year according to CommSec 240,000 fewer immigrants will make their home here, which will have an adverse effect on housing construction and a drastic effect on the economy: up to 1.5% GDP downturn.
However, with Australia increasingly seen as a safe haven net migration out of the country is expected to grind almost to a halt and many expats are indeed moving back into the country, and coupled with that is the expectation that when immigration starts again we will reach the 160,000 annual permitted limit very quickly and humanitarian immigration may increase to 44,000 by 2022/23 according to an Oxfam report by Deloitte late in 2019 , which should see an uptick of housing and infrastructure.
Moves are afoot to revise the governments immigration cap and Acting Immigration Minister Mr Alan Tudge last week said “It’s too early to speculate about the migrations future composition, but changes to the program may have to be made” and some are calling for an increase in immigration similar to the post war years when Australia had an influx of quality European migrants.
If this were to eventuate a mini boom in construction may be a possibility.
However, what we have to go on at the moment is the current government regulatory settings and in this scenario while population growth due to the reduction in immigration is expected to be well below the last decade, it will still be between 1 and 1.6% which should materialise in steady construction growth.
Master Builders Association has updated their forecasts for both residential and commercial building in April, based on the impact of COVID-19.
This is down quite considerably on the highs of 2016,however this MBA forecast was completed before the government $25,000 grant scheme for 2020/21 which should bring the level closer to this year ending.
Along with large infrastructure projects already started such as the second Sydney airport and the Melbourne- Brisbane rail line, there is other projects such as the Metro Western Sydney rail line just announced and others that the government is about to reveal that will stimulate the economy well into the decade.
The other area that is making a rapid comeback now that everyone has spent long periods at home is the home renovation space and a Nov 2019 Bureau of Statistics report states that even back then 38% of Australians were planning renovations in the next 12 months but all pundits say that figure will be greatly increased now. Re-configuring homes for part time working from home will increase considerably. Home offices, patios, kitchen refurbishments, repurposed living and media rooms and bedrooms will all be on the agenda. Over $8.5b was spent last year and this is forecast to increase in late 2020 and into 2021.
Overall by 2022/2023 Australia is expected to be back in a strong and consistent construction phase which should help jobs to recover well and good prospects and opportunities for suppliers and others indirectly supporting the construction industry.
It must be said that we are indeed the lucky country and credit must go to everyone from the governments down in pulling together to keep our nation safe, prosperous, and moving forward in the face of global uncertainty and adversity.
Imex International (AU) – June 2020