New Zealand: Construction Outlook, March 2024

What you will learn:

• We forecast total construction work done to decline further into 2024, falling 9.1% in 2024, down from our previous forecast of -7.8%. The bulk of the downgrade is largely due to historical data revisions by StatsNZ over 2021,2022 and 2023, as well as a larger backlog of non-residential projects than previously anticipated. Nonetheless, activity levels remain in line with our previous forecasts. Heightened inflationary pressure and an elevated cash rate will place a drag on new demand for construction over the near term. While supply chain constraints are expected to ease, still elevated input prices will continue pull down on demand for building. The decline will be led by residential building as it continues to fall from historically high levels. However, additional support will stem from an influx of net migration. In addition, progress on the backlog of civil engineering projects will remain supportive. Activity levels are then expected to improve, averaging 5.6% p.a. over the four years to 2028. There remains significant downside risk should inflationary pressures persist.
• Residential building work done is forecast to decline 19.0% in 2024, continuing to fall from a historically high base. Weak household demand and inflationary pressures are expected to continue to hamper activity. However, headwinds are anticipated fade slowly, with cash rate cuts anticipated in H2 2024. The sector will find some support from a dwindling projects backlog.