The value of building work in Australia continued to fall in the final three months of 2016, bucking expectations for rebound following a weather-disrupted slump in the previous quarter.
According to the ABS, the value of construction work fell 0.2% to $46.2635 billion in seasonally adjusted terms.
That was below the 0.5% increase expected, and followed a 4.4% contraction that was initially reported as a decline of 4.9%.
Public sector construction was behind the decline, dropping 1.6% for the quarter. That was largely offset by a 0.2% increase in private sector work over the same period.
Compared to the same quarter a year earlier, the total value of construction work slumped by 7.8%.
However, unlike the September quarter where the value of construction work fell across the board, the weakness on this occasion was entirely driven by engineering work, largely as a result of the ongoing unwind in the mining CAPEX boom.
It fell by 2.2% to $19.568 billion, taking the decline from the same quarter a year earlier to 18.6%.
That was largely offset by a rebound in building work.
Residential construction rose by 1.1% to $17.965 billion, outpaced by a larger 1.8% increase in non-residential work to $8.73 billion.
The strength in residential construction was almost entirely driven by strength in New South Wales where it surged 7%, helping to offset a patchy performance from other states and territories.
Combined, total building worked increased by 1.3% to $26,695.2 billion for the quarter, up 2.1% on the levels seen in Q4 2015.
From a year earlier, the value of residential work grew by 5.7%, helping to offset a 4.4% drop in non-residential construction.
However, while residential construction has helped to soften the landing from continued weakness in engineering work, Tapas Strickland, an economist at the National Australia Bank, says there’s signs that it too may be at or nearing its peak.
“Apartment construction appears to be topping out at high levels,” he wrote following the release of today’s report.
“Since 2014, apartment construction has averaged growth rates of around 6% a quarter, but has moderated more recently and was up just 0.9% in the December quarter.”
And, if he’s correct, Strickland says that could have ramifications for economic growth and interest rates in the medium to longer term.
“The topping out of apartment construction is important for the outlook for growth and interest rates as it has been a key driver of employment growth in the economy,” he says.
“A prospective decline in dwelling investment is a key factor behind NAB’s slower GDP growth profile in 2018 than that of the RBA, which we think could cause the RBA to cut rates later in 2017.
“Today’s data supports that view, and slower growth eventuates, could lead to the RBA reassessing the current trade-off it is making between unemployment and household indebtedness.”
Strickland says that the private sector components from the release imply a 0.1% point contribution to Q4 GDP growth, something that may help to offset a “worrying” decline in public sector construction.
“The public sector components were weaker, but these do not automatically translate into GDP with the ABS using government spending figures to be released next week,” he says.