Australia’s construction investment likely to have recovered slightly in Q2

Fewer private sector buildings were constructed in Australian in the first quarter resulting in the weakness in overall construction investment in that quarter. Private sector buildings are the biggest component of the indicator. It accounted for 44 percent of the overall construction investment last year. However, the fall was in some contrast to other signs such as building permits, the pipeline of work yet  to be done etc.

Thus the 1.4 percent quarter-on-quarter decline in the first quarter is expected to have been reversed in the second quarter, said Societe Generale in a research note. Also, buildings for public sector are likely to have extended the recovery that started in the first quarter, following nine drops in the earlier ten quarters.

The rate of decline in private sector engineering investment is unknown. Private sector engineering investment had accounted for 39 percent of the overall construction investment last year. Following double-digit sequential drops in the two latter quarters of 2015 and a 6.8 percent sequential decline in the first quarter, a contraction of 5 percent is likely that would be in line with the capital expenditure survey for FY 2015/16.

This would suggest a decline of 30 percent year-on-year in private sector engineering expenditure in the second quarter. Given a variety of public infrastructure projects, a gain in this category is likely.