Construction reaching record highs, but structural concerns linger

Despite uncertainty related to tariffs and with business investment ‘flailing’, the Australian economy will gradually gain momentum over the rest of this year and into 2026 according to economic advisory firm Oxford Economics Australia.

The latest economic outlook from the organisation predicts the building sector is set to hit record levels by the end of the decade, while electricity construction has already hit record highs as Australia decarbonises the electricity network.

However, an engineering construction shift from urban centres to regional areas will amplify challenges around labour shortages, while turning around productivity growth will be key to improving living standards.

These are the key takeaways from Oxford Economics Australia’s bi-annual economic outlook conference series, which has already been held in Melbourne before making its way to Sydney on September 24.

According to Oxford Economics Australia economists, the national “risk pendulum” swings from fighting inflation to navigating trade tensions and kickstarting productivity growth.

“While Australia is largely out of the direct firing line from President Trump’s tariffs, we are not immune to the fallout,” said Harry Murphy Cruise, Head of Economic Research and Global Trade, Oxford Economics Australia. “Global uncertainty is lapping on our shores, unsettling businesses and weighing on the labour market.”

And with business investment is stuttering, productivity growth is and keeping the economy in the long-term slow lane.

“Turning this around is key to improving Australians' living standards,” said Sean Langcake, Head of Macroeconomic Forecasting for Oxford Economics Australia. “Policymakers should prioritise better skill matching and removing unnecessary roadblocks that confront construction and investment.”

However, Oxford Economics Australia believes that, with the RBA close to declaring victory in its fight against inflation, the central bank will ‘get a wriggle on’ with rate cuts.

One more interest rate cut is expected this year, followed by a final cut in the first quarter of 2026, taking the cash rate to 3.1 per cent where it is expected to hold.

Those cuts will help the economy gradually gain momentum, with growth of 1.7 per cent this year and 2.1 per cent in 2026.

Given Australia’s relatively low tariff rate, most industries are expected to see a rise in exports over the next few years. while the beef industry is a standout winner, Oxford Economics Australia also expects growth in Australia’s mined commodities. In particular, the resilience in China’s economy supports demand for iron ore exports.

Total building is anticipated to climb 20 per cent over the next four years, reaching a record $190.3 billion. Trade labour constraints represent the biggest downside risk to this outlook.

Electricity will continue to grow strongly as Australia works towards its climate targets, reaching $16.7 billion in activity in 2030.

Mining activity will also continue its upward surge, with several large iron ore projects supporting activity over the next five years, reaching $40 billion in activity in 2030. Water construction activity is also growing strongly, reaching $5 billion of activity in the same period, supported by a major capital works programs.

However, the changing composition of engineering construction work from transportation to utilities and mining is seeing activity shift from urban centres to regional areas.

This will amplify challenges around labour shortages and industry capacity, as it is difficult to get people to move to regional areas when they already have jobs – but a guaranteed pipeline of work in regional centres will help to swing the ledger.