Construction suffers mining boom hangover

THE amount of construction work completed in Australia had its largest fall in almost 14 years, dragged down by a record slump in the mining sector.

Warren Truss, Deputy Prime Minister and Minister for Infrastructure and Regional Development (wearing a yellow hard hat) making a National Stronger Regions Funding programme announcement and launch Round Two of the $1 billion programme at the construction site of a Ronald McDonald House, alongside the Lady Cilento Childrens Hospital, South Brisbane. Pic Mark Cranitch.

THE amount of construction work completed in Australia had its largest fall in almost 14 years, dragged down by a record slump in the mining sector.

In the first three months of 2015, completed construction work fell 2.4 per cent — a result twice as bad as the market was expecting.

For the year to March, the amount of work done dropped 8.8 per cent, dragged down by the largest quarterly fall in engineering work since the Australian Bureau of Statistics began keeping records in 1986.

It was also the worst since the massive 22.8 per cent drop in the June quarter of 2001, which suffered the triple whammy of the end of the pre-Olympic building boom, the tech stock crash and the introduction of the GST.

Commonwealth Bank of Australia economist Gareth Aird said the weakness in the construction sector will be a drag on official March quarter economic growth figures, due out next Wednesday. “Further declines are expected over coming quarters and this will act as a headwind to growth,” he said after the figures were released on Wednesday.

“Notwithstanding, some large scale Liquefied Natural Gas (LNG) projects have not yet been completed and will provide some support to engineering construction.” Mr Aird said the lift in residential construction during the first quarter will be of some comfort to the Reserve Bank that low interest rates are supporting dwelling investment.

“The lift in residential construction is in line with strength in the building approvals data,” he said.

Engineering work done, which includes mines, roads, bridges and the like, fell 7.3 per cent in the quarter and in annual terms was down by more than 20 per cent, the ABS said.

Total building work done on homes rose 4.8 per cent and non-residential work such as offices and shops, was up one per cent in the quarter.

JP Morgan economist Tom Kennedy said the figures show that the residential construction boom, concentrated in Sydney and Melbourne, is not enough to offset the mining downturn.

“Residential building is still going quite strong, non residential building is going okay but all the weakness is in engineering work which has a very high correlation to the mining sector,” he said.

Mr Kennedy said a recovery in the other non-mining sectors will be needed to help the economy recover fully.

“Even though we’re positive on the outlook for housing, given that it’s a smaller share of the pie it’s very unlikely we’re going to see that sector alone step up and offset the drag from mining,” he said.

“What we need to see is a broader lift most non-mining sectors like retailing, wholesaling and manufacturing.”