Downside risks are growing for Australian GDP

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  • The value of construction work undertaken during the December quarter fell heavily, bucking expectations for a small increase.
  • Large falls were posted for residential and engineering work. A large lift in non-residential construction was a partial offset.
  • The data creates downside risks for Australia’s Q4 GDP report next week.

The value of construction work undertaken in Australia fell heavily in the December quarter last year, driven by steep falls in the value of engineering and residential work.

According to the Australian Bureau of Statistics (ABS), the total value of construction fell by 3.1% to $51.603 billion during the quarter in seasonally adjusted chain-volume terms, undershooting forecasts for an increase of 0.4%.

From a year earlier, that saw growth in the value of building work slow to 1.5%.

The decline in construction reported in the September quarter, originally reported at 2.8%, was also revised down to show a steeper fall of 3.6%.

ABS

Building work slipped by 1.7% to $29.6 billion during the quarter, reflecting a 3.6% fall in residential construction. This was only partially offset by a 1.9% increase in the value of non-residential.

Of note, the value of private residential work slumped by 3.7%, an outcome that will drag on economic growth in Q4.

“[This] suggests considerable downside risk to the RBA’s implied expectation of a relatively modest 0.9% quarterly decline for private dwelling investment in Q4,” said Kaixin Owyong, Markets Economist at the National Australia Bank.

From a year earlier, residential and non-residential work undertaken grew by 2.1% and 0.4% respectively.

Along with residential, the value of engineering work dragged on the quarterly headline reading, slumping 5% to $21.493 billion, leaving it down 7.8% from a year earlier.

The weakness in engineering during the quarter was driven by public investment which slumped by 10.3%.

“While this component doesn’t map across to Q4 GDP that well, it does suggest some downside risk to the hopes that infrastructure will help support investment in Q4,” Owyong said.

While the lift in non-residential construction will partially offset the steep fall in private residential investment, Owyong said today’s report points to downside risks for Australia’s Q4 GDP report released next week.

“The data suggests some slight downside risk to NAB’s preliminary GDP forecast.”

The NAB is currently forecasting a quarterly increase in Q4 GDP of 0.4%.

If GDP were to undershoot the NAB’s forecast, and with Australia’s population growing at 1.6% per annum based on latest data, it means there is risk Australia may record a per capita GDP recession without a substantial upward revision to the Q3 national accounts.

While that remains possible, a number of major GDP inputs will arrive in the coming days, including private business capital expenditure, net exports, government consumption and investment along with net exports.

Australia’s Q4 GDP report will be released on Wednesday, March 6.

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