Preview: Construction Work Done Q4

The ABS is due to release the latest update of Australian construction activity covering the December quarter at 11:30am (AEDT) today, which will feed into next week's GDP growth outcome for Q4. The nation's construction cycle fell into a downturn from the second half of 2018 as the residential sector rolled over, work on major LNG projects wound down and public works slowed. Expectations are that activity contracted further over the final months of 2019, potentially impacted by the bushfires and related smoke haze.    

As it stands | Construction Work Done

Construction activity recorded a fifth consecutive quarterly decline with a 0.4% contraction in Q3 to be down by 7.0% through the year, though this is well above the trough in the cycle of nearly -17.5%Y/Y in Q3 2018. 

Private sector residential construction activity fell by a further 3.0% in Q4 with the decline in annual terms increasing from -8.1% to -10.4% making this downturn its sharpest in more than 18 years. New home building saw a 3.4% contraction in Q4 as the pace of decline through the year steepened from -8.5% to -10.7%, while alteration work was broadly flat in the quarter (- 0.2%) but down by 7.9% across the year. Private non-residential (commercial) work provided some offset with a 4.1% rise in Q4 for an annual gain of 6.4% in response to an earlier upswing in approvals. Private engineering work remained weak with a 4.6% fall in Q4 (-11.4%yr), which largely reflected the wind-down in the final stages of the remaining large-scale LNG projects under construction.  

Public sector works lifted for the first time since the June quarter 2018 with a 5.4% rise in Q4, slowing the annual decline from -13.4% to -5.1%. This was led by renewed strength in engineering (infrastructure) activity (6.4%qtr) following several soft quarters but it remained down on the level from a year earlier (-7.0%). Public building rebounded from weakness in the previous two quarters rising by 2.6% in Q4 to be little more than flat through the year (0.4%).

For a full review of construction activity in Q3 see here 


Market expectations | Construction Work Done 

For today's outcome, the consensus forecast according to Bloomberg's survey of economists is for construction activity to fall for a sixth straight quarter with a 1.0% contraction in Q4. The range of individual estimates is between -3.0% and +0.6%. 


What to watch | Construction Work Done

Details on private residential construction activity are key, with the possibility that weakness in the cyclical downturn may have been accentuated in Q4 due to disruptions associated with the bushfires and smoke haze. Activity in December quarter is also likely to reflect sharp declines in dwelling approvals through Q2 and Q3.