Australia and New Zealand market intelligence: Queensland leads regional performance
Our latest report finds a mixed outlook for the Australian construction market, while the New Zealand construction sector is navigating a period of increased uncertainty.
Across the region, skilled labour shortages continue to persist and contribute to higher cost escalation. While increased migration has started to ease some tightness, growing demand from major infrastructure projects and the anticipated rebound in residential construction, are expected to see shortages continue through the second half of the decade.
Australia maintains a strong pipeline of public sector projects
Economic activity is expected to remain subdued in Australia. While annual inflation eased to 3.6 percent in March, consumer prices rose by 1.0 percent over the quarter, up from 0.6 percent in the December quarter. Economic cost pressures remain elevated, with strong price growth continuing across labour, insurance and rents. While this result is unlikely to change the near-term outlook for interest rates, further signs of sticky inflation could remove any potential rate cuts from the table for some time.
The public sector continues to maintain a strong project pipeline, supported by an increase in infrastructure construction activity, particularly across the renewable energy and utilities sectors. Private sector investment should start to improve once interest rates cuts come into effect.
Skilled labour shortages remain a key challenge faced by the Australian construction industry with labour costs driving up construction costs. This is particularly evident in Queensland where market capacity constraints are already being felt and further tightening is expected. Stronger cost escalation is expected to continue across these markets, while others experience a short-term easing.
Short-term softening across New Zealand’s construction sector
New Zealand's economy is in recession, largely due to the Reserve Bank of New Zealand's (RBNZ) aggressive interest rate hikes aimed at curbing inflation. Despite inflation easing, it remains sticky and above the Reserve Bank of New Zealand (RBNZ) target rate and reducing the likelihood of rate cuts in 2024.
The economic downturn is impacting New Zealand’s construction market, as activity slows across most sectors. Major projects currently underway in Auckland and Christchurch are sustaining activity across the region, albeit at a subdued level. Despite this, the imbalance of skills across the region is keeping pressure on resources with the persistent skills shortages.
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