How to future-proof your business as the construction sector slows

Posted by Rukan Zaman on Aug 8, 2019 2:38:00 PM

The near-term outlook for construction remains somewhat fragile, with the dwelling cycle set to weaken and growth in private sector non-residential construction subdued.

With Australia’s official cash rate now at 1 per cent, and the Reserve Bank of poised to deliver a series of interest rate cuts to fresh record lows, there will be some support for private sector residential and non-residential construction activity. The effect is likely to remain moderate, but it is a small positive.

According to forecasts from Treasury, the RBA and illion, the three sub-sectors of construction have a varied outlook (Table 1).

After no growth in 2018-19 and a sharp 10% slump in 2019-20, residential construction is forecast to contract by a further 3% in 2020-21. It is clearly the weakest aspect of the construction sector. After that, residential construction should be supported over the longer run by ongoing favourable demographics, particularly strong population growth.

Despite growing uncertainty in the business sector, private sector non-residential construction is forecast to grow by around 5 per cent in both 2019-20 and 2020-21. Public sector infrastructure is forecast to grow too, albeit at a markedly slower pace.

Infrastructure spending has risks both ways, with some projects coming to an end and some potential for a lift in the number of large-scale projects which could provide a significant boost to the construction sector. These need to be announced and committed to for the current cautious optimism to come to fruition.

Table 1: Construction forecasts - % growth in real terms*

  Residential Private Non-Residential Public Including Infrastructure
2018-19 0.0 -5.0 6.0
2019-20 -10.0 4.5 3.0
2020-21 -3.0 5.0 2.0

* Using data and forecasts from ABS, RBA, Treasury and illion.

What does this mean for you?

With the outlook for the next couple of years being potentially difficult, it’s important you take steps to future-proof your business.

When a supplier, or business partner gets into financial difficulty, this will cause delays, disruptions, financial loss and reputational damage. With the right forward-looking approach, the risk of these negative outcomes will be significantly reduced.

Businesses in the sector routinely perform credit or financial assessments and/or risk monitoring, and illion has the best commercial data set on the market to compare all the options quickly and efficiently in order to make an informed decision about a robust end-to-end process.

Don’t be one of those people who denies there is a problem. Download illion's special report to find out more and future proof your company.

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Topics: Australian Economy, Construction