Summary: Construction spending contracts at slower pace in March quarter; non-residential building flat; residential and engineering spending falls smaller than in December quarter; March quarter GDP growth likely to be negative.
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 liquid natural gas projects and the expansion of existing mining projects 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 March quarter fell by 1.0%. The decline is slightly smaller than the 1.5% contraction which had been expected and it was an improvement on the previous quarter’s -2.9% after revisions. On an annual basis, the growth rate slightly improved from December’s revised figure of -6.6% to -6.5%.
Westpac senior economist Andrew Hanlan said “the mix of construction activity was a little different than expected, with public works a downside surprise, revealing that activity eased back following a robust rebound over the second half of 2019.”
Commonwealth Government bond yields finished the day a touch lower, ignoring higher US Treasury yields in overnight trading. By the end of the day, 3-year, 10-year and 20-year ACGB yields had each slipped 1bp to 0.26%, 0.87% and 1.48% respectively.
Prices of cash futures contracts moved to reflect a slight hardening of rate-cut expectations. By the end of the day, June contracts implied a rate cut down to zero as a 49% chance, up from the previous day’s 47%. July contracts implied a 59% chance of such a move, unchanged from the previous day. Contract prices of months later in 2020 and through to mid-2021 implied probabilities ranging between 41% and 53%.