Australian construction activity declined sharply in the March quarter (-2.9%), defying expectations for a modest rise (0.5%). That result was attenuated somewhat an upward adjustment to activity in the previous quarter (revised from 0.7% to 1.8%); however, this was still a weak outcome from a key component of the economy that will feed into next week's growth figures for Q1.
Construction activity went backwards in the first quarter of 2024 by 2.9% - the sharpest decline seen in almost 5 years. The result was driven by non-residential (-7%) and engineering work (-2.1%) rolling over from recent strength, while weakness in the residential sector (-1.2%) persisted.
From a broader perspective, construction work done by the public sector - a major source of strength coming of out the pandemic on the back of a ramp up in infrastructure spending - unexpectedly fell (-4.3%), and private sector activity also declined (-2.4%).
In the private sector, residential construction contracted by 1.1% in the March quarter to be down by 3% through the year. Activity in the segment is facing strong headwinds from labour and supply constraints - legacy issues from the pandemic - higher interest rates and affordability concerns. New home building declined by 0.8%q/q and by 1.7% over the year. Alterations (-2.7%q/q, -10.5%Y/Y) have retraced to late 2020 levels, pre the full weight of the Covid stimulus measures that supported this activity.
Private non-residential work was down 6% for the quarter, albeit after an 8.9% surge in Q4. Activity in this segment remains at elevated levels nonetheless, supported by renewable energy and industrial projects.
Engineering activity was down 2.1% overall in the quarter, slowing the increase over the year to 6.2% from 16.3%. The expansive pipeline of public infrastructure projects being undertaken by governments across the nation has boosted engineering activity across both the public (7.8%Y/Y) and private sectors (5%Y/Y). Public sector building work was reported to have contracted by a surprisingly large 9.2% in Q1, an outcome against its recent trend of rising activity.
