Construction hit by $1 billion slump

An unexpected slump in construction activity - particularly engineering construction - wiped $1 billion off Australia's gross domestic product in the March quarter, raising fears that the baton might slip in the changeover from mining to the rest of the economy.

An unexpected slump in construction activity - particularly engineering construction - wiped $1 billion off Australia's gross domestic product in the March quarter, raising fears that the baton might slip in the changeover from mining to the rest of the economy.

The Australian Bureau of Statistics reports that seasonally adjusted construction activity in Australia shrank by 2 per cent in the first quarter of 2013, wiping out almost all its growth over the past year.

Private engineering construction, mostly in mining investment, fell by 1.1 per cent, its second consecutive quarterly decline. After a decade of rapid growth, quarterly private engineering construction shrank by $1 billion, or 4 per cent, in the six months to March.

Engineering activity fell in every state except Queensland. The cauldron of the mining investment boom, Western Australia, experienced 13 per cent less engineering construction work in the March quarter than it had a year earlier.

Victoria also took a big hit, with engineering construction slumping 11 per cent year-on-year as the state government fell far short of its infrastructure spending target. In NSW and the ACT, engineering work shrank 1 per cent year-on-year.

Residential construction took an unexpected step back, falling 1 per cent in the quarter. The fall would have been steeper without WA, where a sharp rebound suggests construction workers might have moved back from mining to housing.

Residential construction activity slumped 7.4 per cent in Victoria to hit a two-year low.

That was good compared with South Australia and Tasmania, where it slumped to a 10-year low. NSW escaped with a 1.7 per cent fall.

Total construction in the March quarter was just 0.2 per cent higher than a year ago. It shrank by a huge 11 per cent in WA, 16 per cent in the ACT, 3 per cent in Victoria, and 6 per cent in South Australia. That was offset by growth of 13 per cent in Queensland and 4 per cent in NSW.

The figures add to signs that mining investment might have peaked already. The bureau says that in the six months to March, imports of construction machinery, mostly for mining projects, plunged 44 per cent from a year earlier.

Construction contributes 14 per cent of Australia's economic output. The latest slump will cut 0.3 percentage points off the bureau's estimate of March-quarter GDP, to be released on June 5.

On Thursday the bureau will release the keenly awaited results of its March-quarter capital expenditure survey. The market's main interest is in companies' plans for 2013-14. The December survey implied a fall of investment, and some fear companies' plans might have shrunk more since.

Tim Colebatch is The Age economics editor.

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