Australia Infrastructure Report Q2 2008

Australia's new Prime Minister Kevin Rudd has made strong indications that the development of national infrastructure will be a government priority. To this end, the government has signalled the establishment of a new body, Infrastructure Australia. Infrastructure Australia, as a statutory advisory council, will seek to assess, and develop strategies, to meet Australia's infrastructure needs into the future. Initial indications are that the body will comprise a small team supplying advice on investment priorities, policy and regulatory reforms. The efficacy of this body at its assigned role will become clearer following its establishment.

State governments, meanwhile, are also keen investors in the Australian construction industry. For instance, in 2007, the South Australian government announced a package of US$450mn for infrastructure development in the region. In West Australia (WA), the government is expected to invest in airport development. Meanwhile, in Queensland water security is a major issue, leading to the commissioning of desalination plants and other water infrastructure development.

In addition to state-sponsored regional airport development, big metropolitan airports are also receiving significant infrastructure upgrades. In the last quarter, both Melbourne and Canberra airports announced extensive upgrades. In the case of Melbourne, the floor space of its international terminal will be greatly increased. Meanwhile, in Canberra, a new terminal is due to be added and road infrastructure around the airport will be upgraded.

Australia's big three construction companies - Multiplex, Transfield and Clough - have all taken on significant projects in the last quarter. Multiplex, for instance, announced that it had completed the purchase of land in Little Bay in Sydney's eastern suburbs with plans to develop it into a quarter billion dollar, five-stage, residential complex. Joint venture partners Transfield Services and Worley Parsons, meanwhile, were announced as the preferred providers for two portable desalination plants sought by the Queensland Government and to be used on the Brisbane River. Clough, meanwhile, announced that it had been awarded a $25mn contract by Apache Energy. The project, dubbed Phase 2A, concerns the installation of an additional solar compressor and attendant pipe lines on the Varanus Island plant in the Pilbara region of WA.

Australia's construction industry accounts for roughly a tenth of GDP. According to figures released in 2006, about 140,000 construction businesses operate in the industry employing more than 800,000 people. It is a very diverse industry in terms of size and scale of operation. A small number of mediumsized companies have captured the residential construction segment, while the eight largest companies in the non-residential construction segment account for nearly 27% of the industry turnover. This report forecasts the industry to grow 3.13% year-on-year (y-o-y) in 2007 to reach a value of US$86.08bn, and further to US$106.04bn by 2012.

Australia's economy appears healthy, with GDP growth estimated at 4.3% for the year to Q307.

Consumer demand has been strong, despite a string of interest rate hikes which have resulted in the official interest ascending to eleven year highs. Australia remains to a degree susceptible to fluctuations in global markets. Notably, some commentators suggest that the full flow effects of the US subprime mortgage crisis have not been felt in Australia yet.