Australia's Q3 construction investment to reverse the Q2 bounce, pointing to weak Q3 GFCF

The report on construction work done for Q2 contained several highly implausible features - implausible in that they seem diametrically opposed to the widely-accepted underlying trends. Hence, they are expected to be reversed in Q3 (or perhaps heavily revised). 

Two features in particular stand out: one, private sector building activity supposedly declined 2.0% qoq, which is in complete contrast to practically all other indicators for the sector - especially building approvals. Admittedly, the Q1 expansion of 6.2% may have been too large to sustain (and weather effects may have played a role), but the Q2 decline is unlikely to be repeated in Q3 in any case. A solid rebound is expected in Q3. 

Two, private sector engineering construction surged 10.2% qoq, despite the well-known downtrend in resource investment. Again, Q1 was very weak, but at -8% qoq it was not weak enough to give rise to a subsequent rebound that was greater than the previous quarter's decline. Hence, a sharp decline is expected in this component. 

Assuming no change in public sector engineering after a strong decline in Q2, and a continuation of declining public sector investment in buildings, consequently overall construction is expected to have declined by 1.8% qoq, effectively reversing the 1.6% gain of Q2. This would point to a solid negative quarter for gross fixed-capital formation (GFCF) in Q3, in contrast to the out-of-trend 1.5% qoq increase reported for Q2.