Construction dip confirms softer economy

(Australian Associated Press)


Construction activity has slowed to its lowest level in nearly six years, adding to the challenges currently facing the economy.

The volume of construction work in the September quarter was down 4.9 per cent from the June quarter, according to seasonally adjusted figures from the Australian Bureau of Statistics.

That took construction activity to its lowest point since the end of 2010.

“With the construction sector accounting for around 14 per cent of the economy this is a material headwind,” Westpac economist Andrew Hanlan said.

He estimates that the drop in construction work will shave half a percentage point from September quarter economic growth, which will be reported in the national accounts on December 7.

“This outcome adds to evidence that the economy hit a soft spot in the middle of 2016, as suggested by soggy labour market conditions,” Mr Hanlan said.

The quarterly fall was seen in residential building and engineering construction, which includes mines and bridges.

But the weakest sector was non-residential building, where the volume of work dropped by 10.9 per cent in the quarter.

That is the steepest quarterly drop in 16 years, when the introduction of the GST induced a slump in the September quarter of 2000.

Even so, Mr Hanlan sees better times ahead for the sector.

“More recently, non-residential building approvals have begun to lift from their lows, pointing to an emerging stabilisation and potential improvement in 2017,” he said.

And the outlook for the economy is brightening.

“We expect the economy to emerge from this weakness, with conditions to improve in 2017, supported by recent RBA rate cuts and a spike in commodity prices,” Mr Hanlan.

JP Morgan economist Ben Jarman also expects the dip in building work will be short-lived.

“Weakness in engineering work has become a well-established trend since mining investment peaked in 2012, though a dip in building work is surprising and should be only temporary,” he said.

Building approvals have lifted for retail, wholesale and office space, boding well for non-residential building work.

“Nevertheless, today’s numbers are broadly weak, adding to the sense from the retail volumes and trade data (and business surveys) that GDP growth slowed materially in 3Q,” Mr Jarman said.

JP Morgan’s economists forecast quarterly GDP growth of 0.3 per cent, less than half the 0.8 per cent average for the past year.


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