Sick Mining Sector Dragging Down Construction

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Thursday, February 25th, 2016
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Mining-related engineering work is plummeting and economists doubt the construction sector can rely on other building work to take its place.

The amount of construction work done in Australia fell 3.6 per cent in the December quarter, the Australian Bureau of Statistics has revealed.

A 9.5 per cent fall in engineering work done, which includes mines, roads, bridges and the like, indicates the ailing mining sector is primarily responsible.

JP Morgan senior economist Ben Jarman expects the flow of building work to weaken even further in 2016/17 as large mining and energy projects are completed.

But he believes the slide won’t be any steeper than the economy is now used to.

“The trend pace of decline in engineering, for example, appears to be levelling out,” Mr Jarman said in note.

In contrast to engineering,  figures show home and non-residential building work rose 2.7 per cent over the quarter.

CommSec economist Savanth Sebastian said the construction “baton” had clearly been passed from engineering to building work.

“Interestingly building (residential and commercial) has surpassed engineering in terms of total work for the first time in five years,” he said in a note.

“The results are even more staggering when you consider that just two years ago engineering work surpassed total building by more than $11 billion.”

However, other economists doubt that home and non-residential building work can fill the gap in the GDP left by engineering work.

ANZ economists warned that housing construction was also currently around its peak, 2.8 per cent, and unlikely to post further growth through 2016.

They said without construction providing a boost to GDP growth the Reserve Bank of Australia would likely move on rates.

“The RBA will need to provide additional stimulus to the economy later this year,” the ANZ economist said in the note.

AMP chief economist Shane Oliver said the weak construction data and slow wage growth date, released indicated the RBA would act eventually.

“They are both are consistent with the RBA retaining an easing bias and likely acting on it sometime in the next few months,” Dr Oliver said.

DEC QTR CONSTRUCTION FIGURES:

  • Total construction work done fell 3.6pct
  • Engineering work done fell 9.5pct
  • Building work done up 2.7pct
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