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Govt infrastructure spending fueling construction industry

  • Oxcel Finance
  • April 24, 2024
Govt-infrastructure-spending-fueling-construction-industry

 

Construction tender prices are expected to experience year-on-year increases in every capital city during 2024, according to the latest forecasts from property group RLB.
 
Adelaide (6.5% growth) and Brisbane (6.0%) are likely to have the strongest price growth, followed by Melbourne, Perth (both 5.0%), Sydney, Darwin (both 4.5%) and Canberra (4.0%).
 
Still, that's a slowdown from 2023, where capital city price growth ranged from 4.5% to 8.0%, and 2022, where it ranged from 5.0% to 12.5%.
 
“While continuing its contribution of approximately 10% of Australia’s GDP, the construction industry grapples with persistent influences of high escalation, industry solvency, low productivity, and labour shortages. However, the outlook for the construction industry is positive,” RLB director Domenic Schiafone said.
 
“Governments across all levels in Australia are prioritising infrastructure spending. This includes projects related to roads, rail, utilities, renewable energy and social infrastructure like schools, hospitals, and recreational facilities. This commitment to infrastructure development is expected to continue to inject significant funds into the industry, creating a steady stream of projects for construction companies.”
Inflation is heading in the wrong direction, with a tight labour market putting upward pressure on wages and spending.
 
Prices rose at an annualised rate of 3.4% in December, January and February, before rising to 3.5% in March and 3.6% in April, according to the Australian Bureau of Statistics (see graph).
 
Unemployment remained very low during that period, rising marginally from 3.9% in December to 4.1% in April.
 
The latest data show wages growth is high, reaching 4.1% in the year to March, although retail sales are low, expanding only 1.3% in the year to April.
 
Collectively, this data highlights why business conditions are challenging right now.
 
Businesses are dealing with both low sales and rising prices. At the same time, with the labour market so tight, businesses are struggling to find staff and are being forced to pay higher wages.
Small businesses in the hospitality sector face the greatest risk of insolvency over the next 12 months, based on the latest Business Risk Index from CreditorWatch.
 
CreditorWatch calculated that 7.5% of SMEs in the food & beverage services sector might fail in the next year.
 
The other sectors with the greatest failure risk include administrative & support services (5.5%), arts & recreation services (5.4%), construction (5.1%) and transport, postal & warehousing (5.1%).
B2B payment defaults were 69.4% higher in April than the year before, with businesses struggling to pay their invoices, according to CreditorWatch. This reflects the challenging conditions and also exacerbates them because businesses that struggle to collect on payments find it harder to remain profitable.
 
“While Australia is far from being in a technical recession, and Treasury is still forecasting positive, albeit weak, GDP growth over the three-year outlook, business conditions will feel recessionary to most businesses that rely on consumer spending, particularly those businesses located in mortgage belt areas of our capital cities,” CreditorWatch chief economist Anneke Thompson said.
 
Don't feel bad if you find the end of financial year (EOFY) challenging – because so do most entrepreneurs.
 
A Xero survey of more than 1000 small business owners and decision-makers found that 71% considered EOFY to be stressful and 56% had experienced mishaps in previous years.
 
Furthermore, 83% of respondents said they found at least part of the year-end process overwhelming, with the biggest sources of overwhelm being:
  • Navigating tax compliance = 33%
  • Gathering financial data = 32%
  • The time investment required = 30%
  • Staying on top of receipts = 28%
  • Balancing financial deadlines with day-to-day operations = 26%
Xero managing director Anthony Drury said EOFY can be a difficult period for small businesses, due to the greater pressure it places on time and resources.
 
“We always encourage small business owners to connect with their accountant or bookkeeper throughout the year to make EOFY preparations easier. EOFY highlights how important those relationships are as advisors can help to alleviate pressures, from managing records and financial statements to understanding tax compliance,” he said.

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