Australian construction work digs a hole for the economy in Q4
By Wayne Cole
SYDNEY, Feb 27 (Reuters) - Construction spending in
Australia took a surprise spill last quarter as infrastructure
came off the boil and home building hit a one-year low, a
disappointing result that adds to signs of a struggling economy.
It was the second straight quarter of sharp falls and
challenges the dogged optimism of the Reserve Bank of Australia
(RBA) that growth will pick up this year.
The value of construction work done slid 3.1 percent in the
December quarter, data from the Australian Bureau of Statistics
showed. That badly missed forecasts of a 0.4 percent gain and
followed a 3.6 percent drop in the previous quarter.
Total spending was an inflation adjusted A$51.1 billion
($36.69 billion), the lowest since early 2017 and, on paper at
least, equal to around 0.3 percentage points off gross domestic
product (GDP) in the quarter.
"It suggests some slight downside risk to our preliminary
GDP forecast," said Kaixin Owyong, an economist at NAB.
The GDP report for the December quarter is due on March 6
and NAB had already been tipping pedestrian growth of 0.4
percent in the quarter, giving 2.7 percent for the year.
Home building was a major drag as sliding house prices and
tighter lending conditions put the screws on developers,
particularly for apartments.
As a result residential construction sank 3.6 percent in the
quarter and the outlook is for more pain as approvals for new
building have tumbled in recent months.
"We expect the residential construction downturn will be
much deeper than the RBA's outlook," said Owyong, who expects a
decline of around 18 percent peak-to-trough.
"Today's figures support this less optimistic view for
The RBA acknowledged the faster downturn in building earlier
this month when it cut forecasts for economic growth this year
Yet its latest prediction of 3 percent growth in 2019
already looked in jeopardy, with spending on public works taking
an unexpected nose dive.
Work done on infrastructure dropped 10 percent last quarter
alone, a major surprise given state government have been
splashing out on multi-year road and rail projects.
"Possibly bottlenecks are a constraint or it may have been
weather disruptions," said Westpac senior economist Andrew
"Given the sizeable amount of work yet to be done and with
new projects being added to the investment pipeline, we still
expect public works to add to activity in 2019."
Westpac, however, was bearish on the overall economic
outlook having recently predicted the RBA would be forced to cut
interest rates twice this year, from an already record-low of
Investors are also leaning that way with futures markets
implying around an 80 percent probability of an easing
by year end.
($1 = 1.3928 Australian dollars)
(Reporting by Wayne Cole; Editing by Sam Holmes)
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