Building data points to interest rates on hold, economists say

WEAKER-than-expected construction data makes a June interest rate hike unlikely, economists say.

construction

UPDATE 2.16pm: WEAKER-than-expected construction data show there will be a contraction in economic growth in the March quarter and makes a June rate hike unlikely, economists say.

Construction work in chain volume terms, seasonally adjusted, was valued at $42.327 billion in the March quarter, compared with $42.041 billion in the December quarter, the Australian Bureau of Statistics (ABS) said today.

The median market forecast was for a 1.5 per cent rise in the quarter.

Engineering construction rose 4.6 per cent in the March quarter, residential construction was up 1.9 per cent and non-residential fell 10.2 per cent.

JP Morgan economist Helen Kevans said the headline figure was a little bit weaker than expected, due to the non-residential component.

"Engineering construction was quite strong, as we had suspected, and that was because of the work being done on roads, pipelines and the oil and gas and electricity sectors," she said.

"We think that will underpin these numbers until the end of the year."

Ms Kevans said the weaker than expected construction data may drag down the March quarter gross domestic product (GDP) figures, due out on Wednesday next week.

The figures are already expected to show a contraction in economic growth due to the natural disasters over summer.

"It has pushed down our forecast slightly from negative 0.3 per cent to negative 0.4 per cent," she said.

"We still have a lot of data over the next few days that will fit into that GDP forecast, including the capital expenditure data on Thursday."

She said the Reserve Bank of Australia (RBA) wouldn't raise the cash rate from 4.75 per cent at its next board meeting on June 7 because of the expected contraction in March quarter growth.

"We think the RBA will sit on the sidelines until August, when it will have the second quarter CPI (consumer price index) data in hand," Ms Kevans said.