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Australian Construction Industry Forum Construction Forecasting Council (CFC) www.cfc.acif.com.au 13th Forecast June 2008. Outline. Forecasting Backdrop Track Record Overview of Forecasts Residential Building Non-Residential Building Engineering Construction. CFC project.

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Australian Construction Industry Forum Construction Forecasting Council (CFC) cfc.acif.au 13th Forecast June 2008

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Australian Construction Industry Forum

Construction Forecasting Council (CFC)www.cfc.acif.com.au

13th Forecast

June 2008


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Outline

  • Forecasting Backdrop

  • Track Record

  • Overview of Forecasts

  • Residential Building

  • Non-Residential Building

  • Engineering Construction


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CFC project

  • Forecasting construction to improve the industry’s knowledge base

  • 1st CFC forecasts were published March 2002.

  • CFC forecasts are updated half-yearly and published free on: www.cfc.acif.com.au

  • The 13th CFC forecasts begin from 2008Q1

  • Three broad construction sectors:

    • residential building

    • non-residential building

    • engineering construction


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20 Construction types

Residential Building

Engineering

Construction

Non-Residential Building

Forecast outputs

by 4 types

by 9 types

by 7 types

Type

by 6 capital cities,

6 rest of states & 2 territories

by 6 capital cities,

6 rest of states & 2 territories

Geographic Detail

by 8 states & territories

Time horizon & frequency

Short Term (8 quarters)

& Long Term (9 years)


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Nature of Forecasts

  • We forecast ABS data so the accuracy of the forecasts is readily checkable from credible, published data

  • stage:

    • approvals -> commencements -> work done -> completions

  • seasonality:

    • original / seasonally adjusted / trend

  • nominal or real:

    • values / chain volume

  • normal annual economic growth around 3%

  • normal inflation around 2.5%,

  • = normal growth in (nominal) construction is 5-6%


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4 Elements to Forecast Work Done

1. Fixed Investment demand by 18 Industries

(based on economic fundamentals in MM2)

Construction Investment demand by 18 Industries

2. Industry intelligence (CFC)

Construction Investment demand by 20 types

4. Upcoming Engineering projects

Building and Engineering starts by type

3. Building approvals by type

Work done by type

by region


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Mean Lags – Residential Building


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Mean Lags – Non-res Building


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Mean Lags – Engineering


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Macro Assumptions

latestin 12 monthsLong Run

Wage inflation4.6 (to 07Q4)5.63.9

Unemployment4.2 (Apr 08)5.15.2

CPI inflation4.2 (to 08Q1)2.92.6

GDP (rolling year)4.2 (to 08Q1)1.93.3

Cash rate7.25 (June 08)7.05.5

10-year bond6.5 (June 08)6.55.6

$A (US cents)95 (June 08)9076

  • Economic growth weak in 2008 due to tight financial markets, sending unemployment up. Recovery expected to begin in 2009.


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Outline

  • Forecasting Backdrop

  • Track Record

  • Overview of Forecasts

  • Residential Building

  • Non-Residential Building

  • Engineering Construction


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Track Record: Residential ($bn)


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Non-residential ($bn)


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Engineering ($bn)


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Track Record: Summary

  • Residential building forecasts have shown good accuracy.

  • Non-residential building and engineering forecasts have tended to under-predict.

  • They were too low for 2005/06.

  • Improved accuracy for 2006/07.

  • High accuracy for 2007/08 – new forecasts very similar to forecasts made 12 months ago.

  • Likely it reflects improvements to short-term forecasting methodology made 18 months ago


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Outline

  • Forecasting Backdrop

  • Track Record

  • Overview of Forecasts

  • Residential Building

  • Non-Residential Building

  • Engineering Construction


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Real Activity ($bn/year, 05/06 prices)


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Price Indexes (2005-06 = 1)


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Nominal Activity ($bn/year)


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Construction Employment


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Outline

  • Forecasting Backdrop

  • Track Record

  • Overview of Forecasts

  • Residential Building

  • Non-Residential Building

  • Engineering Construction


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Population Assumptions

history current Forecast

1997-07 2006-072007-17

fertility rate (a)1.761.851.85

net o’seas migration (b)128178204

net interstate migration (b):

NSW-22-27-24

VIC1-2-5

QLD262728

WA143

(a) births per woman; (b) ‘000 persons per year


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Population (average annual growth)


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New Houses, $bn per year


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Units & Townhouses, $bn per year


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Large Alterations & Additions, $bn/yr


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Annual Growth Rates


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Larger States, $bn/yr


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Residential Starts (‘000)


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Residential Building Conclusions

  • After slumping in 04/05 and 05/06, residential showed signs of improvement in 06/07 with 2% real growth

    • Gradual recovery supported by low unemployment and shortages in housing stock caused by strong population growth

    • unit and townhouse building lagged behind, due to the longer construction pipeline compared with houses.

  • But now a pause in residential recovery due to tight credit:

    • high interest rates and tight finance constraining housing market

    • weak growth of only 1% (real) in 2007/08, followed by 2% in 2008/09

    • but solid growth of 5% for 2009/10 when true recovery gets underway


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Outline

  • Forecasting Backdrop

  • Track Record

  • Overview of Forecasts

  • Residential Building

  • Non-Residential Building

  • Engineering Construction


Retail wholesale trade bn yr l.jpg

Retail/Wholesale Trade, $bn/yr


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Offices, $bn/yr


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Industrial, $bn/yr


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Health & Aged Care, $bn/yr


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Educational, $bn/yr


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Annual Growth Rates


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Larger Capital Cities, $bn per year


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2008 Floor Space Starts (‘000 sqm)


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Non-Res Building Conclusions

  • Total non-residential building has been rising solidly

    • real rises of 11% in 2005/06 and 9% in 2006/07

    • estimated solid real growth of 7% in 07/08

    • recovery in offices

    • several large health projects starting

    • accommodation is being held back by weakness in tourism

  • Activity flat in 08/09 with fall in 09/10 (1%, -5%)

    • industrial building work done to fall in 08/09 as manufacturing industry suffers from the high $A

    • office building and health building commencements to fall in 08/09 after completion of large projects


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Outline

  • Forecasting Backdrop

  • Track Record

  • Overview of Forecasts

  • Residential Building

  • Non-Residential Building

  • Engineering Construction


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Forecast major engineering starts

projecttype target startvalue ($bn)

Pluto LNGWA mining07Q39.0

Port Philip DredgingVIC harbours08Q10.8

Kipper GasVIC mining08Q21.2

Worsley AluminaWA mining08Q21.6

North Rankin GasWA mining08Q34.1

Sugarloaf InterconnectorVIC water08Q30.6

Airport LinkQLD road08Q42.9

Gorgon LNGWA mining08Q49.0

Wiggins Island terminalQLD rail09Q11.0

North West MetroNSW rail09Q310

Wonthaggi Desal. PlantVIC water09Q31.8


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Roads, $bn/yr


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Electricity, pipelines, $bn/yr


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Water & Sewerage, $bn/yr


Heavy industry incl mining bn yr l.jpg

Heavy industry incl. mining, $bn/yr


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Annual Growth Rates


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Larger States, $bn/yr


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Engineering Const’n Conclusions

  • Engineering is currently at a very high level

    • strong real growth of 26% in 2005-06 and 8% in 2006-07

    • driven by mining investment boom from China-induced boost to commodity prices

  • Engineering is expected to continue growing solidly due to infrastructure investment

    • real rise of 12% in 2007-08 then 13% in 2008-09

    • mining boom to near its peak in 2008-09 with markets expecting terms of trade to fall from 2009-10

    • source of growth in engineering to switch from mining to roads, electricity and water, as infrastructure investment strengthens


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13th Forecast: General Conclusions

  • Residential building recovery has paused, due to tight financial market conditions, but relief from 2009/10.

  • Non-residential building to fall in 2009/10 - the high Australian dollar hits industrial building and the office upswing ends; but growth from education and health.

  • Engineering construction to continue solid growth. After 2008/09, the main source of growth switches from mining to roads, electricity and water projects.

  • Demand for construction labour reaches a plateau in 2008/09, moderating wages growth thereafter.


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