Friday, 21 July 2017

Construction in the Australian Economy

The Economic Role of Australian Building and Construction

This profile of the economic role Australian construction focuses on the industry’s contribution to output and employment, and is based on two publications from the Australian Bureau of Statistics. The first is the National Accounts data on gross domestic product (GDP), which provide the macroeconomic context of the industry. GDP includes construction as part of private gross fixed capital expenditure and is divided into dwellings, building and engineering construction. The second is Australian Industry, which provides data on the internal structure and performance of the industry, which have undergone significant change over the last decade[i].

In Australia in 2016 the construction industry accounted for 9.6 per cent of gross domestic product and 9.2 per cent of employment. Construction’s share of industry output was 6 per cent in 2000, and the fifty percent increase in GDP share was driven by the engineering work for the mining and gas projects commenced during Australia’s mining boom, which is usually divided into two phases, with mining boom 1 from 2001-2008 and mining boom 2 between 2010-2014. 

Table 1. Construction in the National Economy 2016

Per cent of total

Per cent of total
Gross domestic product, bn
Employment, ‘000
Dwellings, $bn
Building, ‘000
Building, $bn
Engineering, $bn
Cnst services, ‘000
  Sources: National Accounts: Chain Volume Measures, ABS 5206; Labour Force, ABS 6291.

Figure 1. Industry Contributions to GDP 2015-16

 Source: National Accounts ABS 5206. Industry shares of Gross Value Added.

Changes in the level of construction are closely linked to changes in GDP, however the volatility of construction is much greater, as shown in Figure 2. When construction output is rising GDP is typically increasing, and tends to peak around the same time. In periods when construction is contracting, GDP grows slowly. While the residential and commercial building cycles get the most attention, in Australia it is the Engineering sector that has the greatest volatility, driven in part by the size of major projects, in Figure 3.

Figure 2. Construction Industry and GDP
Source: National Accounts ABS 5206. Private gross fixed capital investment

Figure 3. Construction Divisions and GDP

Source: National Accounts ABS 5206. Private gross fixed capital investment

 For the Australian construction industry, the most widely used data is the value of work done, shown in Figure 4, with the level of activity in residential building, non-residential building and engineering construction. The major phenomena of the last decade was the increase in engineering work during mining boom 1 from 2001-2008 to a historically high level, followed by a rapid rise and fall during mining boom 2 between 2010-2014. 

Figure 4. Construction 
Source: Construction Activity: Chain Volume Measures ABS 8782.

With the end of mining boom, the role of the building sector of the industry in the macroeconomic transition has been important as the contribution from engineering declined. This transition from the resource investment driven economy, when business investment peaked at an all-time high of 18 per cent of GDP, has required growth in residential building to support employment and output. That is currently being tested as the residential building cycle appears to have peaked. There were significant compositional and structural changes in construction during the mining boom, discussed in the next post.

[i] Beyond the regular detailed output and activity statistics from the ABS there are few data sources. An infrequent Construction Industry Survey is published (ABS 8772, last two in 2011 and 2003).

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