June quarter construction activity surprising: Westpac's Andrew Hanlan
GUEST OBSERVER
Construction activity surprised to the high side, advancing by 1.6% in the June quarter. Expectations were for a decline (Westpac and market median –1.5%).
Private infrastructure, dominated by mining, was the source of surprise, jumping 10.2% in the quarter, centred on a 35% spike in WA.
Total construction work ex WA infrastructure was weak in the quarter, declining by 5.3%.
The construction report reads more like an update from 2011, when the mining investment boom was in full swing. However, this spike in infrastructure work will not be sustained. Rather prospects are for sizeable falls ahead, even more so given this burst of work.
The positive, is that the construction sector (which accounts for around 15% of the economy) will add to growth in the June quarter 2015. This will provide a partial offset to the drag from net exports, which have swung from a positive contribution in Q1 of 0.5ppts to an estimated subtraction of –0.4ppts in Q2.
Infrastructure work in WA jumped to $11.3bn in the quarter, a $2.9bn increase on Q1 or a rise of 35%.
Construction of the $10bn Roy Hill iron ore project and the $61bn Gorgon LNG project will have contributed to this spike. It appears that there has been a ramping up of work in an effort to make up for past delays.
Elsewhere, it was a weak quarter for construction.
Public works fell further, down a sharp –8.4%qtr, to be 15% lower than a year ago. In the year ahead, public infrastructure is likely to improve as state governments begin work on new transport projects.
Commercial building was little changed, ahead of likely falls with approvals falling sharply in 2014, particularly in the mining states.
Private new residential building surprised, declining by 3.6% in the quarter. Although, this dip follows a 16% rise over the past year, including a near 8% increase in Q1. With approvals hitting fresh record highs early in 2015 new home building activity is set to strengthen in coming quarters.
Private home renovations strengthened, up 0.9% in the quarter to be 4% higher than a year ago. This is likely the beginnings of a modest upturn, following a period of softness, consistent with the upturn in the housing market more generally.
By state, Q2 construction work was: up sharply in WA, +25.5%qtr, 14%yr; broadly flat in NSW; edged lower in Victoria, -2.8%qtr, but was still up over the year, +7%; and fell further in Qld, -11%qtr, -32%yr.
Andrew Hanlan is senior economist for Westpac and can be contacted here.