Australia’s construction output falls again in Q4 2018, residential investment likely to fall strongly in 2019

Australia’s construction activity came in soft again in the fourth quarter, and is likely to have weighed in on the economic growth. Housing and public engineering came is especially subdued. In the past few years, the construction sector has been an important support to growth and employment, and an earlier-than-expected downturn in the sector might be a concern for outlook, noted ANZ in a research report.

Sequentially, construction dropped 3.1 percent in the fourth quarter, after the downwardly revised fall of 3.6 percent in the prior quarter. The softness was mainly seen in housing, which recorded a fall of 3.6 percent, and engineering construction, which dropped 5 percent sequentially. Meanwhile, non-residential building recorded a moderate rise of 1.9 percent. Public sector construction was markedly softer than private sector.

Looking at private sector, housing was the soft spot, falling 3.7 percent, as new building dropped 3.6 percent and renovations dropped 4 percent. While there is still some work in the pipeline that will underpin in supporting activity in quarters ahead, the degree of the recent fall in building approvals implies that the pipeline will be eroded rapidly and residential investment is expected to decline strongly in 2019, said ANZ. Private non-residential building was widely unchanged, while private engineering construction dropped 1.3 percent.

A 10 percent fall in engineering construction mainly drove the softness in public construction. Non-residential building construction gave an offset, rising 7.3 percent. Falling construction activity was clear throughout all the states, with the largest declines in Queensland and NSW.

“The construction sector has been a key support for the economy over the last few years, both in terms of growth and employment. While there is still a considerable amount of work in the pipeline for public engineering construction and residential construction, the weakness in H2 2018 has been more marked than we expected, and if this points to an earlier and sharper turn in the cycle than we expected, it would suggest downside risks to our outlook”, added ANZ.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was neutral at 27.928, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -123.367 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex