Public Sector Projects to Fill Mining Gap

Friday, August 26th, 2016
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Public sector projects are likely to be main type of construction contributing to economic growth in coming years.

The amount of building work done in Australia fell 3.7 per cent in the June quarter, dragging annual growth down 10.6 per cent.

Construction of homes and non-residential buildings such as shops and offices was up 1.2 per cent in the quarter, with the overall figure dragged down by a nine per cent fall in engineering work, reflecting the completion of major resources projects.

Engineering construction work fell 25 per cent in the 12 months to June, its largest annual fall on record.

National Australia Bank economist Tapas Strickland said the numbers also showed housing construction was relatively flat in the June quarter, with renovation work driving residential activity.

Mr Strickland also noted that a rise in non-residential construction work was almost entirely driven by public sector spending.

“The high level of residential construction is providing some offset (to falling engineering work), though activity appears to be nearing its peak suggesting that residential construction may not add too much more to GDP growth in the near future,” he said.

“Acting as some offset will likely be the ramp up in public sector infrastructure investment which appears most concentrated in NSW and Victoria.”

JP Morgan economist Ben Jarman said the flow of residential project completions were expected to remain strong over next couple of years, given the elevated volume of higher density building work.

But he warned that non-residential building figures were more nuanced, with public sector projects usually long lived, so completions take longer.

“These projects are adding to GDP today, but the lags to the work done data are uncertain,” he said.

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