Drop in home building to weigh on growth

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)


A large drop in residential home construction during the coronavirus pandemic will weigh on economic growth across the nation.

Overall construction work completed during the quarter fell by a modest 0.7 per cent in the quarter to $50.1 billion, smaller than economists had expected at a time when restrictions were imposed on the nation to try and contain the virus.

But it disguised a 5.5 per cent tumble in residential building construction to be 12.1 per cent down over the year, Australian Bureau of Statistics data showed on Wednesday.

The data feeds into next week’s June quarter national accounts which are expected to confirm the economy is suffering the first recession in nearly 30 years with a substantial contraction, possibly by around seven per cent.

Housing Industry Association senior economist Geordan Murray said the decline in residential building work will compound that contraction.

“The decline in home building activity can only partially be attributed to the COVID-19 disruption,” Mr Murray said.

“The majority of residential building sites around the country were able to continue operating during the initial COVID-19 lockdown by implementing on-site social distancing measures.”

However, he said the pipeline of new sales came to an abrupt halt during this period.

Non-residential building contracts showed a smaller 1.5 per cent decline in the quarter, while engineering bucked the trend, rising by a solid 3.8 per cent.

JP Morgan economist Tom Kennedy said the surprise strength in engineering activity creates some modest upside risk to his forecast for an overall 7.2 per cent economic contraction in the quarter.

The construction report kicks off a series of economic reports over the next few days that will give a better idea of how deep the recession has been.

The economy contracted by 0.3 per cent in the March quarter and a second consecutive negative quarters will constitute a technical recession.

The June quarter national accounts are due on September 2.

On Thursday, business investment data will be released.

Economists expect June quarter private business capital expenditure tumbled a hefty 7.9 per cent, extending the 1.6 per cent fall in the first three months of the year.


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