Australian construction output increased by a modest 0.4% in the June quarter, missing to the downside of expectations (1%) but coming after a large upward revision to work done in the March quarter (3.8% from 1.8%). Overall, these outturns report that construction activity lifted by 4.3% over the first half of 2023 and by 9.3% through the year to the June quarter.
The increase in Q2 activity was driven by the engineering component (0.7%) as building work was subdued (0.2%), with residential weakness (0%) largely offsetting the momentum from non-residential activity (0.6%).
It has been a mixed picture for activity across broad construction in Australaia over the past year. Increased public sector investment (11.7%) coming out of the pandemic has seen infrastruture spending ramp up, underpinning an acceleration in engineering activity (15.5%), with spillover effects for the private sector through involvement in these projects.
Non-residential activity (6.7%) has picked up over the past year as firms have played catch up with projects earlier delayed by the pandemic and capacity constraints; investment in renewable energy projects has also been a key factor.
By contrast, private sector residential construction (3.2%) has been more subdued. New home building lifted by 5.1% through the year, but activity came close to stalling in the first half of 2023 (0.2%), indicating capacity constraints are still a headwind. Rising insolvencies may be contributing to this, which have stemmed from margin pressures homebuilders have faced amid cost escalations and rising interest rates. Meanwhile, alterations have contracted by 7.2% over the past year, to now be 12% below their 2021 peak. After surging during the pandemic alongside stimulus measures from low interest rates and construction subsidies, alterations are normailising as builders complete more of their backlogged projects.
