Australia: Construction disappoints again in Q4 - ANZ

Analysts at ANZ note that Australian construction work done fell for the second quarter in a row in Q4 and is a disappointing result given a solid rebound had been expected, after the weather-affected weakness in Q3.

Key Quotes

“Although a soft result overall, the increase in privately-funded activity is an encouraging sign, and suggests that we are past the peak drag from the mining sector.”

“The fall in the fourth quarter was driven by the public sector, down 1.6% q/q. These falls were concentrated in non-residential building, which remains weak in the absence of stimulus-induced education and health projects. However, we remain optimistic on the outlook for total public expenditure, with a significant backlog of engineering work to support activity across the roads and rail sectors in particular.”

“On the other hand, privately funded work posted the first quarterly rise in 18 months, albeit a mild 0.2% q/q. Growth was centred in the non-residential building sector, although some of this likely reflects payback after a large decline the previous quarter. Meanwhile, housing construction rose once more, almost entirely due to strength in New South Wales, which leapt 7% to the highest level on record. However, softness across most other regions limited the overall increase in activity, consistent with our view that we are around the peak in dwelling construction. A strong backlog of work is expected to see housing construction remain around historically high levels in coming quarters, but further significant growth appears unlikely.”

“The decline in privately funded engineering construction continued into Q4, down 3.5%. This is likely to persist through 2017, as the remaining mining projects, primarily across Western Australia, Queensland and Northern Territory wind up. However, it does appear that the worst of the drag from the mining sector is behind us, with the quarterly drag on construction now at -2.2%, from a trough of -4.5% in March 2016.”

“Today’s result is certainly on the soft side, and business construction (non-residential building and engineering construction) will likely weigh on next week’s Q4 GDP result. But it is becoming apparent that the declines from the mining sector are easing, and will be less of a drag on overall economic activity going forward.”