Preview: Construction Work Done Q3

At 11:30am AEDT today, the ABS is due to publish its latest update of Australian construction activity for the September quarter and this will help inform the outlook ahead of next week's GDP growth figures for Q3. Over the past year, the nation's construction cycle fell into a sharp downturn driven by a rollover of activity in the residential sector, the wind-down in the mining sector associated with the completion of large-scale LNG projects, and a slowdown in public works. 

As it stands | Construction Work Done

Construction activity fell for the 4th straight quarter in Q2 with a sharper-than-expected decline of 3.8%. Over the year, activity contracted by 11.1% subtracting around 1.1ppts from national GDP growth. 

Private sector residential construction work fell by 5.3% in Q2 to be down by 9.9% through the year, which is its weakest annual pace in 18 years, with construction for houses -8.9%Y/Y and units -11.2%Y/Y. Non-residential (commercial) work in the private sector contracted by a sharp 7.8% on the quarter and by -3.8% year-on-year following an earlier upswing between 2017 and mid-2018. Private engineering work pulled back by a further 2.5% in Q2 for an annual decline of 15.7%, though the trough should be in with the mining sector set to lift investment for the first time in 6 years in 2019/20.  

In the public sector, total activity slowed by 0.8% in Q2 and fell by 13.0% over the year. Infrastructure work lifted by 0.9% in the quarter but was down by around 16.0% in year-on-year terms, which is likely to prove a temporary period of weakness given the elevated pipeline of projects to be completed. Public building weakened by 5.1% in Q2, swinging the annual pace from +4.6% to -3.7%. 

For a full review of Q2's report see here    

Market expectations | Construction Work Done 

In today's release, the median forecast according to Bloomberg's survey of economists is for construction activity to decline by 1.0% in Q3, with the range of individual estimates spread between -3.5% and +1.0%.

What to watch | Construction Work Done 

The outcome for private residential construction work is key and will provide an indication of the extent to which it will drag on GDP growth in Q3. In the previous quarter, residential construction subtracted 0.2ppt from overall activity and was a drag of -0.5ppt across the past year. The weakness is set to persist well into 2020 with dwelling approvals falling by 7.4% in Q3 to be tracking around 21% down on the level from a year earlier.