Abstract
With the economic environment continuing to deteriorate at a severe rate, we
have revised down our
forecasts for the construction industry in
Australia. Data released in Q109 shows that the Australian
economy shrank
in real terms at a rate of 0.5% quarter-on-quarter (q-o-q) during Q408,
according to the
Australian Bureau of Statistics. We now forecast that the
country will endure a negative economic growth
rate of -1.4% for 2009 as a
whole. In this context, we estimate that the construction sector grew by
just
0.4% in real terms during 2008 and we forecast that the sector will
undergo a real contraction of -3.2%
across 2009. We believe that the
sector will continue to contract in 2010, at an annual rate of -1.1% in
real
terms, before a return to modest positive real sector growth in 2011.
Given that our macroeconomic team
forecasts that Australia' s anticipated
recession will be driven in large part by a plunge in private
consumption,
the outlook for private sector-generated construction activity in 2009 appears
grim indeed.
However, the public sector should offer some support.
On
balance, risks to our forecasts are slightly to the upside (at least for
2010). An end to the country' s
recession in early 2010 would likely enable
the construction sector to record positive growth for the year
as a whole.
However, while it is certainly plausible that a recovery will be seen in 2010
rather than 2011,
it appears unlikely that our 2009 forecast will prove to
have been too pessimistic, given the current
parlous state of demand in
the global economy.
We have updated and extended our company analysis this
quarter, looking at H208 results. Despite the
global economic downturn,
major Australian infrastructure companies appear to be holding up well, at
least for now. WorleyParsons generated a net profit of AUD197.5mn (US$126.6mn)
in the six months
to the end of December 2008, a rise of 29.3% y-o-y in
local currency terms. Leighton Holdings also
remained profitable in the
second half of the calendar year. Both companies can point to supportive
factors that should mitigate the downturn, although it remains to be seen how
they will cope with a
protracted recession.
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