AAP Finance

Construction fell again in March quarter

By AAP Newswire

Construction work fell less than expected in the three months to March, suggesting the decline in GDP for the quarter may not be as much as economists have previously forecast.

The value of construction work fell 1.0 per cent to $49.48 billion on a seasonally adjusted basis, Australian Bureau of Statistics figures showed on Wednesday.

The fall was lower than the 1.5 per cent decline that economists were anticipating and follows a 3.0 per cent drop during the December quarter.

The overall number was largely on account of an 8.1 per cent fall in NSW, with total work in all other states either flat or rising.

Housing construction contributed the the biggest drop, down 1.6 per cent in the quarter to $17.25 billion.

This was again largely a result of a decline in NSW (5.4 per cent), where developers have put the brakes on residential projects.

Non-residential construction was largely unchanged at $11.67 billion.

Engineering construction fell 1.1 per cent in the March quarter to $20.56 billion as public works faded.

"This outcome suggests construction activity was not as badly affected by coronavirus restrictions in March as some had feared," National Australia Bank economist Kaixin Owyong said in a note.

The ABS noted that designation of construction as an "essential service" enabled activity to progress despite social distancing restrictions implemented from late March.

However, it said there would be a lag between any change in demand and subsequent impacts on new work given the time taken to approve and commence an application for building construction work.

Economists expect these numbers to still result in a small decline in GDP during the March quarter, with worse to come for the June quarter.

"Given what survey data say about industry conditions late in the quarter, the trajectory moving into second quarter is not good, and we expect quite heavy falls in private activity across residential and capex-related work," JP Morgan economist Ben Jarman said.

He expected a 0.4 per cent decline in March quarter GDP and said this would be a sideshow to what happened in the following quarter.

"Construction should fall sharply in Q2 before eventually recovering in response to low interest rates. The recovery is likely to take time," NAB's Kaixin Owyong said.