Australia’s construction work falls at smaller than expected rate in Q1, pandemic impact on activity to be apparent in Q2

Construction work in Australia dropped 1 percent quarter-on-quarter in the first quarter. Even if this was a smaller fall than expected, it is likely to still detract from the first quarter growth of GDP, noted ANZ in a research report. On a year-on-year basis, construction fell 6.5 percent, while it fell 12.5 percent from the mid-2018 peak. The overall result was dragged down by an 8.1 percent quarter-on-quarter drop in NSW, with total work done flat-to-rising in all other states.

The fall in residential construction continued, but the 1.6 percent quarter-on-quarter fall was smaller than expected. NSW and Vic were the only states to record decreases in residential activity, dropping 5.4 percent and 0.7 percent. Since the mid-2018 peak, NSW residential work done fell 28 percent, while Vic work done is only down 4 percent.

Private sector non-residential building rose 0.5 percent quarter-on-quarter and engineering construction rose 0.2 percent in the first quarter, implying that supply chain issues might have been less of a problem than previously thought.

Private sector non-residential building (+0.5% q/q) and engineering construction (+0.2% q/q) work done both lifted a little in Q1 following falls in Q4, suggesting that supply chain issues may have been less of a problem than previously thought.

Public sector engineering construction fell 3 percent, while public sector non-residential building work done dropped 1.4 percent after a cumulative rise of 9.5 percent in the prior two quarters.

“The impacts of the pandemic on construction activity will become more apparent in Q2. We think that the current decline in residential activity will be longer and deeper than previously expected. For non-residential building, the dynamics differ by subsector: tourism and retail will likely be the weakest and offices will also face challenges, but the outlook for industrial appears more positive. Infrastructure activity will likely be more resilient, especially now that we’re seeing funding announcements by all levels of government for new and fast-tracked projects”, added ANZ.