Australia and New Zealand market intelligence: strength in outlook but softening to come first

Australia’s construction activity sustained by public sector investment 

Economic headwinds are set to challenge Australia’s construction industry in 2024, as high inflation and restrictive monetary policies impact consumer spend and private investment, slowing economic growth. 

Strong migration is helping to loosen the tight labour market but is also adding further pressure to the property market as acute dwelling shortages continue to be experienced across the country. While the government has made it a priority to address the housing supply shortage, higher interest rates, high construction costs and cost of living pressures are impacting buyer demand and project feasibilities. This is resulting in fewer-than-needed residential projects in the pipeline. While these challenges persist, it is unlikely there will be any meaningful improvement in the nation’s property market.  

Despite the ongoing review and federal budget cuts, the national infrastructure pipeline has remained robust with a considerable number of infrastructure projects to be delivered.

Even so, considerable risks will need to be addressed before these projects can proceed. State governments have also sustained or increased project funding, particularly in the health, education and defence sectors. This sizeable investment from governments should help to counter some of the effects from a softening in private sector investment in the region.  

New Zealand’s construction activity expected to slow 

New Zealand's economic outlook faces challenges, contracting for the third time in 12 months. High inflation and increased interest rates continue to impact economic activity, with key drivers being a decline in private consumption, government spending and exports.  

New Zealand's challenging economic landscape continued to slow new investments in Q4. Higher interest rates, inflation and construction costs weigh on the construction industry, leading to a softer outlook for 2024. However, sectors like data centres and warehouses exhibit resilience, with sustained levels of demand despite the economic downturn. A steady pipeline of large public infrastructure projects is also expected to provide some relief to the market. 

The labour market is showing signs of strain, with unemployment reaching four percent in December 2023. The loosening of the labour market reflects weakened economic activity and reduced hiring by businesses. Meanwhile, strong migration is expected to support growth over the medium term.