Construction plunge exceeds fears

“Ugly” figures showing a worse-than-expected fall in construction trigger economic slowdown fears.

Building work on homes dropped 5.1 per cent on the previous three months. Picture: AAP

The construction sector unexpectedly weakened in the June quarter, with the rate of work plunging further than anticipated, triggering concerns among analysts of a sharper slowdown in the Australian economy.

According to the Australian Bureau of Statistics, construction work in Australia fell by a worse-than-expected 3.8 per cent in the June quarter, with the decline accelerating across both residential and non-residential sectors.

Total building work on homes dropped 5.1 per cent on the previous three months on a seasonally adjusted basis, while work on non-residential buildings fell by 6.6 per cent, the ABS figures show.

Total value of work done fell to $48.78 billion for the period - down 11.1 per cent on a year ago - and well below economists’ expectations of a 1.0 per cent quarterly decline.

“These construction data are ugly, not a hallmark of a ‘strong’ economy at all,” IFM Investors chief economist Alex Joiner said. “June quarter GDP growth seems beset with downside risks at this stage,” he said.

Westpac economist Andrew Hanlan said the weakening housing market combined with a slide in public infrastructure construction was also made worse by a “further winding down” of private infrastructure spending by Australian companies.

“With the construction sector representing around 13 per cent of the economy this result will dent second quarter GDP figures, potentially in the order of 0.4 percentage points,” Mr Hanlan said.

“The housing downturn still has further to go and will weigh on conditions throughout 2019 and into 2020,” he said.

The ABS releases the June quarter GDP growth figures in early September. Economists expect the Australian economy to have slowed further from a rate of 1.8 per cent in March. The March quarter figures were already the slowest since the GFC.