Australia: Construction work reportedly pulled backed in Q4 - Westpac

Andrew Hanlan, Research Analyst at Westpac, notes that the Australian construction work reportedly pulled backed in Q4, down 19.4%, following gains of 9.8% and 16.6% in Q2 and Q3.

Key Quotes

“Construction work fell back in Q4, down 19.4%, after outcomes in Q2 and Q3 were inflated by the importation of large LNG structures.”

“Currently, the headline figure for the survey is not a reliable indicator for the national accounts. The survey counts the full value of these LNG structure when they are imported, while the national accounts includes only the value of work completed during the period.”

“Excluding private engineering (the segment distorted by this accounting issue), provides some insights into Q4 activity.”

“On this basis, activity in Q4 was softer than anticipated, with a temporary dip in public infrastructure work and with private new residential building work declining.”

“Total public works fell by 0.9%, whereas we anticipated a rise of 1.4%. While public building work rose, up 6.4%, this was more than offset by a 4.5% drop in public infrastructure activity. This fall is only a temporary dip given a sizeable work pipeline and with state governments committing to further projects, particularly transport initiatives.”

“Total private building work edged lower in Q4, down 0.4%, whereas we anticipated a rise of 1.0%.”

“New residential building work moved lower again, down 2.4%, following -3.0% in Q1, -0.4% in Q2 and a +0.7% in Q3. We had expected a stabilisation in Q4 ahad of a moderation in work during 2018 with approvals down from the peaks of 2016. By contrast, the RBA expects work to hold up at a high level.”

“Renovation work moved higher, but only marginally, +0.5%, a disappointing result after a sharp 7.6% decline in Q3, a fall associated with the household sector reining in spending.”

“Non-residential building work advanced strongly, as anticipated, up 3.4%, extending the upward trend that emerged early in 2017. There is considerable further upside to commercial building work in 2018, particularly in Victoria, as the capital stock expands to meet the needs of a growing population – with projects spanning offices, retail, accommodation and entertainment.”