Construction work slumps as the residential sector reverses sharply
Australia’s construction sector has not only hit the brakes, it has moved sharply into reverse according to the latest data from the Australian Bureau of Statistics.
- Construction work in New South Wales and Victoria has fallen for the first time in four years
- Overall construction work last year down 2pc on 2017
- The value of residential construction fell 3.1pc in Q4 against expectations of a rebound
Construction work done in the three months to the end of 2018 was expected to rebound following a surprise fall over the third quarter, however the decline accelerated.
Total construction in seasonally adjusted terms fell 3.1 per cent over the quarter, compared with expectations of a marginal rise.
The total value of construction work done last year was $51.6 billion, around 2 per cent lower than in 2017
While the slowdown in the engineering sector has been on a long-running story as the construction of big resource and gas projects wrap up, the sudden fall in residential work has become alarming.
The value of residential work fell 3.6 per cent over the quarter, although it is still up 2.1 per cent over the year.
The major surprise was the weakness in New South Wales and Victoria, the two powerhouses in the construction sector.
Both reported their first quarterly falls in the value of construction in four years.
The weakness, particularly in the residential sector, is supported by private industry surveys run by the likes of the Australian Industry Group and the Housing Industry Association which have reported home building activity to be at its lowest ebb in six years.
Another surprise buried in the data was the weakness in public sector spending on big infrastructure projects which had, until now, been propping up the broader construction industry.
Public sector spending on engineering construction was down more than 10 per cent for the quarter against a more modest 1.2 per cent decline in the private sector.
IFM Investors chief economist Alex Joiner said the public infrastructure “boom” is perhaps overhyped or at arguably best an inconsistent contributor to GDP growth.
The slowdown is also feeding into the labour market, with the most recent detailed ABS data showing jobs in construction fell 1.6 per cent in the three months to November last year.
The scorecard so far on fourth quarter GDP to be released next week makes for fairly bleak reading.
On top of today’s unambiguously weak data, retail sales volumes have been poor and net exports are also shaping up as a drag on growth.
Dr Joiner said removing the effects of population growth from the national accounts, Australia faced the prospect of GDP-per-capita recession after the third quarter’s surprisingly weak result.
“Looks like a soft quarter in train — [although] some significant partials to come though — two consecutive quarters of negative GDP per capita a real risk,” he said.
ANZ’s Felicity Emmett said there was still some work in the pipeline, but the figures — when coupled with the rapid decline in building approvals — pointed to the flow of work drying up quite quickly and a solid fall in residential investment this year.
“While there is still a considerable amount of work in the pipeline for public engineering construction and residential construction, the weakness in [the second half of] 2018 has been more marked than we expected, and … this points to an earlier and sharper turn in the cycle than we expected,” she said.
Market economists are becoming increasingly convinced fourth quarter GDP will well and truly undershoot the Reserve Bank’s implicit forecast of 0.6 per over the quarter.
UBS has cut it forecast to just 0.3 per cent — or 2.5 per cent over the year — but says that may still be optimistic the way recent data has rolled out.