Australian engineering construction tumbled again, but the worst may now be over

Photo by Joe Raedle/Getty Images

Led by yet another substantial slump in engineering, the value of Australian construction work done fell sharply in the June quarter.

According to the Australian Bureau of Statistics (ABS), the value of construction work slid by 3.7% to $47.419 billion in seasonally adjusted terms. It was below market expectations for a decline of 2%.

The March quarter decline, previously reported as a fall of 2.6%, was revised to a drop of just 0.3%, helping to offset the ugly Q2 result.

While the headline figure was less than impressive, it was driven entirely by a slump in engineering work done. It tumbled by 9% to $21.459 billion, leaving it down 24.9% on the same quarter a year earlier.

The value of private sector engineering construction fell for a fourth consecutive quarter, slumping by 14.3% to $14.228 billion. It was the largest quarterly percentage decline registered in the history of the survey, and the 13th in the past 15 quarters.

In dollar terms, it now stands at the lowest level seen since the December quarter of 2010.

Public sector engineering work helped to limit the damage, rising by 3.7% to $7.231 billion. It has now increased in each of the past four quarters, with the dollar value now the highest since Q4 2013.

Partially offsetting the slide in engineering construction, another sign of the unwinding mining capital expenditure boom, the value of building work done rose by 1.2%, led by non-residential construction.

It increased by 2.1% to $8.941 billion, up 0.4% on the levels of a year earlier.

Fitting with the strength in residential construction seen in other data releases, the value of residential work done rose by a smaller 0.8% to $17.019 billion, nearly 10% above the levels seen in the June quarter of 2015.

Combined, the value of building work done came in at $25.96 billion, up 6.1% from a year earlier. It was also the highest quarterly total on record.

Scott Haslem, George Tharenou and Jim Xu, economists at UBS, called the quarterly result “weak”, although they expect that the worst of the decline has now been seen.

“With the weakness led by a 20% collapse in WA, likely one of the last large project-led falls, we continue to view 1H16 as the peak of the capex drag,” they wrote following the release of the report.

“This is also consistent with the improving y/y construction trends across most other states, especially NSW (+9%, VIC +10% & SA +6%), as well as recent sharp improvement in the public capex outlook.”

In terms of the implications for Australian Q2 GDP — released in two week’s time — they suggest that Q2’s weak private engineering figure will be mostly offset by better residential and public capital expenditure.

“For Q2 GDP, we continue to forecast a below consensus 0.3% Q/Q.”

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