Leading global property and cost consultant Rider Levett Bucknall anticipates a recovery in the residential construction market from mid 2010, based on significant pent-up demand, improved affordability and reactivated property investors, This recovery will coincide with a revival in the non-residential construction market towards the end of 2010 underpinned by substantial government spending on built infrastructure and recovery in the global economy.
Dr Andrew Wilson, Senior Economist at Rider Levett Bucknall commented, "New South Wales construction activity, particularly non-residential construction will continue to decline significantly through 2009, flattening through 2010, before resuming shallow growth in 2011."
Recovery in construction markets and recovery in the general economy are co-dependant (with housing construction generally leading the economy out of recession). It is anticipated that Australia will experience a recession in 2009 the depth and duration of which will be determined largely by the performance of overseas economies, particularly the US. Although Australia will be flat-lining through most of 2010, recovery in the US in 2010 and subsequent recoveries in Europe, Japan and China through 2011 as a consequence should rapidly reignite Australian commercial activity.
Current official US Federal Reserve forecasts predict US GDP growth of between -1.3 and -0.5 in 2009, 2.5 to 3.3 in 2010 and 3.8 to 5.0 in 2011. These medium-term outcomes would be particularly beneficial to the Australian economy by expediting a significant global economic recovery.
Historical analysis indicates that the decline phase (peak to trough) of the non-residential cycle should last 3 to 4 years depending on the severity of the economic downturn driving it. Given current Reserve Bank of Australia growth forecasts, this would indicate that Australia may be approaching the midpoint of the decline phase of the non-residential activity cycle, this phase having commenced towards the end of 2007.
An earlier-than-expected domestically-induced recovery by China, independent of economic revival in the US and Europe, would, given China's close trading relationships with Australia and its dependence on Australian resources, accelerate the resurgence in Australian commercial construction. Signs of this resurgence, generated under these circumstances, may begin to appear as early as the beginning of 2010.
Stephen Mee, Director Rider Levett Bucknall commented, "Factors such as the significant reduction in general local, national and international economic output; high development risk aversion, constrained funding and low consumer sentiment (rising unemployment, falling equity values) all contribute to NSW's current decline in construction activity."
"This decline in activity will be moderated by government funding of built infrastructure that will kick in through small-scale projects late 2009 with larger projects coming on line late 2010," he said.
"Whilst the current situation is grim, it is important for everyone to not lose sight of the light at the end of the tunnel."