Australian construction activity was broadly flat (-0.1%) in the December quarter, a large downside surprise on expectations for a 1.3% increase. But the news was more positive than the headline figure implies, with weakness in the public sector (-2.8%) hiding a pick-up in private sector activity (0.9%).
Construction activity weakened very modestly in the December quarter falling by 0.1%, slowing growth through the year to 3% from 3.9% previously. However, work done in the September quarter was revised to show a 0.1% rise, after initially being reported as a 0.7% fall. The key details were building work up 0.9% (including gains of 1% for residential work and 0.7% for the non-residential segment), weighed by a 1.3% contraction in engineering work.
Across the past year, building work has picked up to rise by 8.1%. RBA easing in 2025 supported home building, while investment in data centres has seen non-residential activity accelerate. By contrast, the engineering segment has declined (-2.7%) as the large pipeline of public sector infrastructure projects that ramped up post Covid has started to cycle.
Accordingly, those dynamic feed into the divergence between private sector activity (0.9%q/q, 6.5%Y/Y) and public sector work (-2.8%q/q, -5.8%Y/Y). Next week's National Accounts will show the public sector is still supporting the economy through government spending, but the investment side has rolled over. That leaves the private sector as the growth engine of the domestic economy.
Encouragingly, private activity in residential construction lifted a further 1.1% in the December quarter following an acceleration in the previous quarter (4.6%), with output through the year running at a strong clip (7.7%). Residential construction will support growth in the December quarter, though to a lesser extent than in Q3. Looking ahead, the RBA hiking early in 2026 (and likely to tighten further) will become a headwind as the year progresses.
Business investment was a key driver of growth in the September quarter, though today's data suggests that tapered into year-end (albeit capital expenditure data will provide a clear picture in tomorrow's release). Non-residential construction work moderated to a 0.8% rise after surging by 8% in the previous quarter, which was largely attributed to lumpy investment in data centres.
