The value of Australian construction work done fell sharply in the September quarter, and it’s not a good sign for Australian economic growth, say economists.
According to the ABS, the value of work done fell by 4.9% last quarter to $46.15 billion, the smallest quarterly total in nearly six years.
Surprisingly, the weakness was not just in engineering work, but also building work as well. Even the value of residential construction fell, albeit from the highest level on record.
The size of the decline was well below the 1.7% drop expected by economists, and if the early GDP inputs are anything to go by, it looks set to drag significantly on Australian GDP when it is released in two weeks time.
“On a GDP basis, we estimate that construction subtracted a massive 0.7 percentage points (pp) from Q3 GDP after taking 0.2pp off in Q2,” said Felicity Emmett, head of Australian economics at ANZ. “This would be the largest subtraction since the GST-related collapse in housing construction in 2000.”
Scott Haslem, economist at UBS, also says that the weak result means the risks to Australian Q3 GDP are now clearly to the downside.
“While we viewed last quarter as the peak of weakness — which it clearly wasn’t — the cycle turn in engineering that call was based on is occurring. However, an unexpected slump in non-residential building and a soft quarter for residential conspired to render the overall construction story still weaker,” he says.
“Today’s data puts Q3 GDP on track for ‘flat’, much below our current 0.5% forecast.”
The next GDP input — private capital expenditure (CAPEX) — will be released on December 1.