Australia and New Zealand gear up for tough construction market conditions
Against the volatile global market backdrop, our latest Australia and New Zealand market intelligence report finds that rising construction costs, higher interest rates and declining property values are seeing new private sector investment slow, while public sector activity continues to ramp up.
Australian construction markets remained active over Q3 2022, supported by strong public sector activity. While there remains a large pipeline of work yet to be completed across most states, new investment from the private sector is showing signs of slowing amid increasingly challenging market conditions and uncertainty on the outlook. Skills shortages remain the key challenge across Australian construction markets, with wage growth now starting to accelerate Construction costs remain high across all markets and will continue to remain elevated while the large pipeline of work is completed.
Similarly, in New Zealand, the volatile global and domestic backdrop has created immense challenges for the construction sector, which is weighing in on new private sector investment. Public sector projects continue to press ahead, in particular, transport infrastructure projects. Construction costs have increased sharply across the country, and we expect prices will remain elevated until demand softens and pressures on the supply side ease.
High interest rates take effect
The Australian and New Zealand economies remained resilient over Q2 2022, with both economies recording growth, despite intensifying global headwinds and high domestic inflation. The tightening of monetary policy has been firm-handed, with higher interest rates now starting to take effect. As tensions continue to mount around the war in Ukraine and the outlook for the global economy softens, we expect tougher conditions ahead for both the Australian and New Zealand economies.
Mitigating inflation risk
The continued interconnectivity of markets is more apparent now than ever and we are seeing near-universal inflationary trends hitting costs and programmes. Successful delivery of a project, programme or portfolio in an inflationary environment is dependent on the quality of thought and approach that is adopted at both the definition and execution of the procurement process. This quarter, we explore some important steps to ensure businesses can mitigate risk through procurement.
