AUD: Construction continues to weigh on GDP – ANZ

Research Team at ANZ, notes that the Australia’s total construction remained a drag on GDP, falling further in Q1 as the total construction fell by 2.6% (consensus: -1.5%; ANZ: -2.5%), which was the ninth fall in the past ten quarters.

Key Quotes

“Construction is now 7% lower than a year ago. This indicates that construction will subtract 0.4pp from Q1 GDP.

Housing construction continues to expand, but is nearing a broad peak. Residential investment rose by 1% in Q1, with gains in both the construction of new homes and renovations to existing homes. A record volume of work in the pipeline continues to underpin work done despite a general cooling in the housing market in recent months. While this backlog of work may support further growth in activity, we think housing construction is unlikely to be as significant a contributor to GDP in 2016 as it was in 2015.

Private engineering construction continued to fall heavily, reflecting the ongoing contraction in the resources sector. Engineering construction fell by 7% in Q1 and is down 21% over the past year. The recent and approaching completion of a number of multi-billion dollar LNG projects is leaving a significant void in engineering activity. This process has further to run and we continue to expect sizeable falls in construction over coming quarters.

Private non-residential building posted the heaviest fall since 2009. Nonresidential construction fell by 8% in Q1, which we think reflects earlier weakness in approvals. We view this as a disappointing result as it suggests that the construction component of non-mining business investment remains weak.

Public construction posted a broad-based gain. Public construction continued to expand, up 2.5% in Q1 on broad-based strength in spending. Engineering construction continues to pick up steam, in line with our view that infrastructure work will be an increasingly important contributor to growth. Note, though, that these data do not feed into GDP, with public spending sourced from next week’s public demand report.”