Construction boom expected to lead Australia’s economic recovery from Covid

Construction is expected to lead our economic recovery but experts warn projects are facing two major problems.

A construction boom is expected to lead Australia’s economic recovery from the Covid-19 pandemic.

The easing of tough restrictions in Covid-ravaged Victoria and New South Wales is set to drive growth into early 2022.

But economists are warning the lack of workers and materials is a “noxious cocktail” for the industry, which will struggle to deliver projects on-time and on-budget.

A new Deloitte report released on Monday predicts the economic recovery will be “slower” than the initial economic snapback and lead by infrastructure investment.

“Infrastructure investment is forecast to increase by almost 30 per cent this financial year,” Deloitte Access Economics partner Stephen Smith said.

“A total of approximately $175bn is set to be spent on infrastructure over the next three years – 70 per cent of which will be in New South Wales and Victoria.”

A construction boom is expected to lead Australia’s economic recovery.

Mr Smith said governments had shifted their spending from consumers to construction, with the value of infrastructure projects underway set to rise from $200bn this year to $285bn in 2023 – surpassing the peak in activity seen during the mining construction boom.

But he said Delta outbreaks had piled the pressure on the sector, and that a high level of global infrastructure investment meant Australian contractors may not be able to fill skills shortages with overseas workers when the international borders reopens on Monday.

“To make matters worse, there have also been construction materials shortages, with prices increasing for key inputs such as timber, rebar and steel,” Mr Smith said.

“Put simply, a lack of workers and materials is a noxious cocktail for the construction industry.

“And with a record amount of infrastructure work set to be completed – not to mention a large pipeline of residential construction activity – it will be a stretch for contractors to deliver projects on-time and on-budget.”

Mr Smith said the coming economic recovery will be “slower and less complete” than the recovery Australia saw through to mid-2021 but may be more sustainable.

The Australian economy is forecast to grow 1.1 per cent in the December quarter, to be 3.2 per cent larger in 2021.

A further gain of 4.5 per cent is forecast in 2022 before the pace of growth is expected to average out.

Ongoing state border restrictions and the threat of snap lockdowns present a “challenging backdrop” for new business investment.

Businesses are also expected to turn their attention towards internal risk such as securing and retaining key talent and implementing new technologies.

A proportion of workers are expected to continue working from home, which economist have flow-on effects for investment in transport networks and CBDs.

Meanwhile, China is expected to pursue a diversification strategy to reduce their reliance on Australian commodities over the longer term.

This includes developing domestic iron ore capacity and improving access to overseas iron ore from countries other than Australia.