Construction falls for second quarter in a row

After the weather-affected weakness in Q3, the level of construction work done has fallen for the second quarter in a row in Q4, declining by 0.2 per cent, according to ANZ’s latest Quick Reaction analysis.

ANZ said that the result is “disappointing”, given that a solid rebound had been expected from Q3 where construction work dropped by 4.4 per cent.

According to ANZ, the fall in the fourth quarter was driven by the public sector, which was down 1.6 per cent quarter-on-quarter. The declines were concentrated in non-residential building, which ANZ says remains weak in the absence of stimulus-induced education and health projects.

“However, we remain optimistic on the outlook for total public expenditure, with a significant backlog of engineering work to support activity across the roads and rail sectors in particular,” the bank said.

The bank pointed out that on the other hand, privately funded work posted the first quarterly rise in 18 months (0.2 per cent quarter-on-quarter).

Housing construction also rose, particularly in New South Wales, which saw an increase of 7 per cent.

However, ANZ highlighted that softness across most other regions limited the overall increase in activity, which is consistent with its view that dwelling construction is reaching its peak.

“A strong backlog of work is expected to see housing construction remain around historically high levels in coming quarters, but further significant growth appears unlikely,” ANZ said.

“Today’s result is certainly on the soft side, and business construction (non-residential building and engineering construction) will likely weigh on next week’s Q4 GDP result. But it is becoming apparent that the declines from the mining sector are easing, and will be less of a drag on overall economic activity going forward.

“Although a soft result overall, the increase in privately-funded activity is an encouraging sign, and suggests that we are past the peak drag from the mining sector,” the bank concluded.

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