Preview: Construction work done Q2

Details of the impact of the COVID-19 pandemic on Australian construction activity come to hand at 11:30am (AEST) when the ABS is due to release its update for the June quarter. Ahead of the onset of the pandemic, the nation's construction cycle had entered a downturn with activity in the residential sector continuing to unwind from elevated levels, non-residential work slowing and major projects in the resources sector nearing completion. The disruption from the onset of the pandemic appeared to be relatively minor in the March quarter but is expected to be much more accentuated in today's update.   

As it stands | Construction Work Done

Australian construction activity has contracted in 6 of the past 7 quarters, with the most recent being the 1.0% decline that came through in the March quarter, taking it to 6.5% lower through the year (see here). The downturn in the residential construction cycle, the wind down in mining sector investment have been the key factors, while non-residential work has weakened more recently.   

Private sector construction work fell for a 5th straight quarter declining by 0.6% in Q1 for a year-on-year contraction of 8.7%. The downturn in residential construction that started from in the second half of 2018 continued as work done pulled back by a further 1.6% (-12.4%yr). Non-residential work lifted by 0.5% in Q1 but is trending lower (-2.2%yr) around a volatile profile over recent quarters, matching the slowdown in the approvals data. Engineering activity was stable in Q1 (0.2%) but fell by 7.3% over the year as major projects in the resources sector were completed. Public sector construction activity also declined in the March quarter (-2.5%), slowing the pace in annual terms to 1.1% from 2.0%. Both engineering (-3.0%) and building work (-1.4%) contributed to Q1's soft outcome. 

Market expectations | Construction Work Done 

The median estimate according to Bloomberg is for construction activity to fall by 5.8% in the June quarter, with individual estimates ranging from -3.4% to -11.7%.  

What to watch | Construction Work Done

A heavy decline will be reported in headline construction activity reflecting the disruption caused by the pandemic. The underlying detail will convey a deeper story around the impact of a weak economy and an uncertain outlook, with residential construction and non-residential work likely to be temporarily delayed or shelved altogether. There is likely to be some offset though, with mining sector investment picking up after several years of decline and governments looking to fast track infrastructure projects.