The chances of a negative outcome for the June quarter GDP have risen with the surprisingly large fall in the value of construction work done in the three months to June.
The figures, from the Australian Bureau of Statistics, are the first significant set of figures that feed directly into the national accounts for the June quarter and 2018-19 to be released on Wednesday of next week.
Later today the private Capex data from the ABS will be released and will mesh with yesterday’s figures to present a solid picture of spending and investment in the quarter – and another look at investment intentions for the 2019-20 financial year.
The value of construction work completed in the three months to June slumped a seasonally adjusted 3.8% to $48.78 billion in seasonally adjusted chain volume terms, making the decline from the same quarter in 2018 11.1%.
Economists had been forecasting a fall of 1%, so the bigger than expected slide has forced them to now start wondering if the flow-through impact into the national accounts and GDP reading will be greater than expected.
Weakness was seen across all categories, led by a 6.6% plunge in the value of the non-residential building. Residential and engineering work also softened, down 5.1% and 1.1% respectively.
During the June 2019 quarter, Western Australia was the only state to see an increase in construction activity (+1.4%). The largest reduction in construction work affected the ACT (-13.1%), followed by the Northern Territory (-12.3%) and Queensland (-6.0%). There were also declines in South Australia (-4.8%), Victoria (-4.4%), Tasmania (-4.1%) and New South Wales (-1.9%).
Westpac Bank senior economist Andrew Hanlan said the disappointing construction update is a “material negative for second quarter (Q2) GDP.”
“With the construction sector representing around 13 percent of the economy this result will dent Q2 GDP, potentially in the order of 0.4 percentage points depending upon how these quarterly partials flow through to the national accounts estimates,” he said in a note.
Mr. Hanlan said the drop in construction activity over the past year reflects the downturn in the home building cycle, a pull-back in public works and a further winding down of private infrastructure activity, primarily in the mining sector.
He also thinks the drag on economic growth from weakening residential construction still has further to run year.
We have already had the retail sales data for June and the estimated growth in retail volumes for the quarter (the key measure so far as the national accounts are concerned). Retail volumes didn’t grow in the three months to June, an unchanged reading from the March quarter.
Over the year to June, volumes grew by around 0.3%, which was the weakest financial growth in 30 years, a pointer to another low estimate for household consumption in the national accounts.
