Preview: Construction work done Q1
The March quarter update on Australian construction activity is due to be published by the ABS at 11:30am (AEST) today. Following on from recent weakness, another soft outcome is expected to be posted in the first quarter of 2020 that was affected by the summer bushfires and the early phases of the COVID-19 crisis.
As it stands | Construction Work Done
Australian construction activity has been contracting since the second half of 2018 driven by a downturn in the residential cycle and by the wind-down in work in the resources sector as major projects completed. The December quarter was particularly weak as construction work done fell by 3.0% on declines in residential, non-residential and engineering activity, which steepened the fall in annual terms from -5.6% to -7.4%.
Private sector residential construction activity notched its sharpest quarterly contraction since Q3 2003 pulling back by 4.6% in the December quarter to be down by 12.6% over the year — its fastest pace of decline in 18½ years. This was driven by a 5.1% fall in new home building (-13.5%yr), while alteration work weakened by 1.2% (-5.6%yr). Amid a volatile profile in recent quarters, private non-residential work declined by 4.7% in Q4 slowing the annual pace from 10.8% to 3.7%, though this was well up from its most recent trough of -4.7% a year prior as earlier strength in approvals translated to activity. Reflecting the final stages of construction of major projects in the resources sector, private engineering work fell by a further 3.1% in Q4, increasing the annual decline from -7.7% to -13.3%.
After an earlier slowdown, public sector work stabilised over the second half of 2019 with activity lifting modestly in the December quarter (0.7%q/q, 0.5%Y/Y) to consolidate an advance from the previous quarter. Engineering work followed up Q3's 2.9% rise with a 1.0% lift in the quarter while building work was flat after a robust 5.5% increase in the September quarter.
Market expectations | Construction Work Done
The median forecast for today's outcome according to Bloomberg is for construction activity to post a 1.5% decline in the quarter, with estimates ranging from -5.0% to +1.0%.
What to watch | Construction Work Done
Private sector residential work is the area to watch in this report as it accounts for around 35% of total construction activity. With the residential construction cycle already in a sharp downturn ahead of the pandemic, this weakness is now expected to extend for longer than previously thought and remain a drag on GDP growth throughout 2020.
