Australian construction activity increased more sharply than anticipated in the March quarter. Progress in working through the vast pipeline of public sector infrastructure projects has accelerated. Headwinds continue to hold back progress in the home building sector.
Construction Work Done — Q1 | By the numbers
- Construction activity expanded by 1.8% in the March quarter - stronger than the expected rise (0.5%) - and by 5.1% through the year. Work done in Q4 was revised to a 1% rise from a 0.4% fall.
- Segment details were:
- Engineering work increased by 5.3%q/q (from 2.4% in Q4) to 14.9%Y/Y.
- Building work contracted by 1.1%q/q (from -0.2%) to be down by 2.2% over the year.
- Residential work fell 2% (from a 0.9% rise in Q4) for a decline of 5.1% in year-ended terms.
- Non-residential work was broadly flat at 0.3% in Q1 (from -1.7%) but increased by 2.2% through the year.
Construction Work Done — Q1 | The details
Activity in the construction sector rose by 1.8% overall in the March quarter around contrasting outturns from engineering (5.3%) and building work (-1.1%). This extends the strong momentum in engineering work seen over the back half of 2022 - where activity expanded by 7.8% - as progress on infrastructure projects ramps up. Building work lifted at a moderate pace for the second half last year (2.5%), progress that has slipped in early 2023.
The key dynamic in the quarter was the sharp lift in public sector construction (4.9%); in comparison, private sector construction lifted by only 0.6%. Work done by the public sector has expanded by 13% through the year to the March quarter, with engineering (18.1%) the main component. Governments across Australia have brought forward infrastructure projects (partly associated with the pandemic response) and the pace of that work has lifted as capacity constraints and weather-related disruptions have eased.
This has led to an associated lift in private engineering work (3.8%); however, private sector construction activity increased only slightly overall in Q1 (0.6%) and at a modest pace over the past year (2.3%). Building work has weighed, contracting in the most recent quarter (and declining in 3 of the past 4 quarters) to be down 2.6% through the year.
Private residential work has fallen by almost 5% over the past year. New home building (-2.6%q/q) has been surprisingly weak (-4.8%), with an easing in delays and disruptions unable to boost progress in working through a substantial pipeline of new homes. Alterations have been unwinding from their pandemic highs (-4.2%Y/Y); however, they posted a 2.7% rise in Q1.
Non-residential construction work rebounded alongside the recovery from the pandemic recession, but that uptrend has slowed over recent quarters. Cost increases may have led to many firms delaying projects.
Construction Work Done — Q1 | Insights
On the positive side, today's report suggests public demand will add solidly to GDP growth in the March quarter (with expenditure data due early next week to complete the picture). The rise in private sector non-residential work is a positive lead for business investment (capex data tomorrow will provide more insight), coming off the back of a contraction into year-end. The weak point is private sector home building with Q1's sharp contraction set to weigh on quarterly GDP.
