Summary: Construction spending contracts but at much less than expected; March quarter revised up; residential, non-residential building down; engineering up, possibly stronger mining investment; June quarter GDP growth forecasts likely to be less negative than previously thought.
Construction expenditure increased substantially in Australia in the early part of last decade following a more-steady expansion through the 2000s. A large portion of the increase came from the commissioning of new projects and the expansion of existing ones to exploit a tripling in price of Australia’s mining exports in the previous decade. The return to “normal” investment levels is still continuing.
According to the latest construction figures published by the ABS, total construction in the June quarter fell by 0.7%. The decline was considerably smaller than the 7% contraction which had been expected but it was a reversal of the March quarter’s 0.7% increase after it was revised up from -1.0%. On an annual basis, the growth rate improved from March’s revised figure of -4.4% to -2.2%.
“Recall that the construction sector was classified as essential, limiting the disruption to work during the April lock-down,” said Westpac senior economist Andrew Hanlan.
Commonwealth Government bond yields finished the day noticeably higher, outpacing higher US Treasury yields in overnight trading. By the end of the day, the 3-year ACGB yields had inched up 1bp to 0.31% while 10-year and 20-year yields each finished 6bps higher at 0.97% and 1.52% respectively.
In the cash futures market, expectations of any change in the actual cash rate, currently at 0.13%, continued to remain low. By the end of the day, contracts implied the cash rate would remain in at 0.12% through to the end of 2021.
Residential building construction contracted by 5.5%, a deterioration from the previous quarter’s flat result. On an annual basis, expenditure in this segment was 12.1% lower than the June 2019 quarter, less than the March quarter’s comparable figure of -10.2% after revisions.