Activity in Australia's construction sector increased for the 5th quarter in succession, rising by a stronger-than-expected 1.3% in the September quarter. This followed an upwardly revised lift of 2% in the June quarter (from 0.4%), leaving activity up by a robust 8.5% through the year. Engineering work has been the main driver of activity over the past year - as it was in Q3 (2.6%) - as work on the expansive pipeline of public sector infrastructure projects continued. Broadly offsetting outturns came through in residential (1.3%) and non-residential (-1.6%) work in the quarter, segments that have been held back by capacity constraints and higher interest rates.
Total construction activity increased by 1.3% in the September quarter, driven by a 2.6% lift in engineering work. Building work was broadly flat (0.2%) as a 1.3% rise in residential construction was largely attenuated by a 1.6% fall in non-residential work. Much of the strength in construction work is coming from the public sector (4.2%q/q, 13.6%Y/Y), with the private sector nearly stalling in Q3 (0.1%) but still up by 6.6% through the year.
Public sector work continues to accelerate, led by engineering work (5.5%q/q, 17.3%Y/Y) associated with the large pipeline of transport and energy-related projects being rolled out by governments across the nation. By contrast, public building (social housing, schools etc) is rising modestly (0.6%q/q, 3.7%Y/Y).
In the private sector, residential construction posted a 1.2% rise in Q3 (4.4%Y/Y). Alteration work saw a sharp lift of 5.1% (4.2%Y/Y) while new home building was up by a modest 0.5% (4.5%Y/Y). Despite supportive fundamentals of strong demand due to rapid population growth and rising housing prices, residential work has lifted at a moderate pace, suggesting higher rates and capacity pressures remain headwinds.
Private non-residential construction work contracted by 2.2% quarter-on-quarter, resulting in year-ended growth falling from 8.6% to 1%. This segment saw a strong rebound coming out of the pandemic but that now looks to be complete. That rebound may have lost some momentum due to the effects of tighter financing conditions and cost escalations that may have led to some projects being shelved.
