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CONSTRUCTION DOWNTURN SHOWS SIGNS OF EASING

09-04-2019
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The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index increased by 1.8 points to 45.6 in March, indicating a slight easing in the construction industry’s aggregate rate of contraction (readings below 50 indicate contraction, and the lower the figure, the stronger the decrease).

The key Activity sub-index remained in contraction, although at the slowest pace of decline in six months. New Orders moderated slightly while the fall in Employment was broadly unchanged from February.

Three of the four construction sectors remained in contraction. Apartment Building was again the weakest performing sector, declining for a 12th consecutive month, although at a slightly milder rate. House Building remained in negative territory with its rate of contraction unchanged compared with February. Subdued conditions were also evident in Commercial Construction, which declined for an eighth consecutive month. However, Engineering Construction expanded slightly (at 50.5 points) in March following four consecutive months of contraction.

Residential building respondents to the survey mainly commented on subdued market conditions due to soft new orders, tight lending conditions, falling prices and caution by prospective buyers.

Ai Group Head of Policy Peter Burn says: “Australia's construction downturn continued in March, although there are some encouraging signs that the overall rate of contraction has eased. Activity fell at a slower pace at the end of Q3 – as more planned projects moved through to construction – while the decline in new orders also moderated slightly. Residential building conditions remain particularly subdued and commercial construction is continuing to detract from industry wide performance.

“However, after four months of decline, engineering construction stabilised in March amid reports of new project starts and an improvement in tender opportunities. Looking ahead, the construction industry is likely to remain in negative territory over coming months due to the ongoing fall being recorded in new orders. On the positive side, there is clearly capacity to lift construction activity if policy makers are looking to stimulate the slowing economy.”

HIA Economist Tom Devitt says: “The contraction in Australian home building activity continues despite easing in recent months. Falling house prices impeded market confidence and the unanticipated credit squeeze combined to accelerate a decline in the market in the second half of 2018. The backlog of projects that have accumulated over the last few years will continue to sustain a relatively high level of activity. This strong pipeline of work is being worked down at present and this will continue unless there is an improvement in the amount of work entering the pipeline.”

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