Australia: Construction work spikes as LNG platform sets sail for WA – Westpac

Australia’s construction work, having trended lower in recent years, associated with the deflating of the mining investment boom, spiked in the June quarter, notes Andrew Hanlan, Senior Economist at Westpac.

Key Quotes

“In the June quarter 2017, construction work jumped 9.3%, a rise of $4.4bn, or 1.1% of GDP. That was well in excess of expectations (market median 1.0% and Westpac 1.0%).”

“In the commentary associated with the release, the statistician was silent on this issue.”

“We suspect that the spike is entirely due to the importation of a floating LNG platform, Prelude, which set sail for WA from a South Korean shipyard on June 28. The survey reports that private infrastructure work jumped 32.2% in the quarter, +$4.0bn and that construction work in WA leapt 55.6%, $4.1bn.”

“This should have no net impact on GDP, with the rise in investment offset by a rise in imports.”

“We had expected the ABS to amortise the value of the platform, spreading it over the time that it was constructed. This would see a relatively smooth rise in investment and in imports. This has been the approach in recent years and avoids these spikes – the approach taken back in the 1990s by the ABS.”

“We are mindful that the import data, as reported in the monthly trade release, did not show a spike in June – hence our surprise today. We are now inclined to expect the ABS to revise the import data with the release of the Balance of Payments on Tuesday September 5, a day ahead of the National Accounts.”

“In other detail, the standout is the upswing in public works, which is a notable growth engine as governments commit to new projects, particularly in transport. Public construction work grew by a further 4.7% in the quarter. Growth has been sustained at a brisk double digit pace, with the annual pace currently of 13.7% matching the 13.6% of a year ago.”

“Private new home building activity may already be at a peak. Activity fell by 2.7% in Q1, revised up from -4.6%, with work disrupted by wet weather and flooding in NSW and Qld. In Q2, work declined by a further 0.8%. Over the past year, activity declined by 4%, with falls in this period reported for Victory, Qld and WA.”

“Private renovation work managed a partial rebound, up 2.6%, after a 5.7% decline in Q1, to be 0.8% below a year ago.”

“Private commercial building work consolidated in the quarter, inching 0.2% lower to be 1% below the level of a year ago. Going forward, work is set to advance, as indicated by the lift in approvals, with strength concentrated in Victoria and NSW, the two states experiencing above average population growth.”