WA Gives Construction Sector a Much Needed Boost

Thursday, August 27th, 2015
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Work on several massive resources projects in Western Australia caused an unexpected rise in construction activity in recent months, but there was also a surprise fall in home building.

The amount of construction work done in the three months to June rose 1.6 per cent, seasonally adjusted, beating expectations of a 1.5 per cent fall.

Leading the charge was WA, with a 25.5 per cent rise, mostly due to engineering work.

“I would suggest that was because of work being completed on the Gorgon project,” NAB economist Tapas Strickland said.

Westpac senior economist Andrew Hanlan said work on Gina Rinehart’s $10 billion Roy Hill iron ore project would have also been a big contributor.

The rise in engineering work comes after heavy falls in the past 18 months, and Mr Hanlan expects the spike to be a one off.

“The construction report reads more like an update from 2011, when the mining investment boom was in full swing,” he said.

“This spike in infrastructure work will not be sustained, rather sizeable falls ahead are in prospect.”

Meanwhile, construction work on homes and non-residential buildings such as offices and shops fell 2.6 per cent in the June quarter, after strong rises in the past year.

“The `baton pass’ from engineering to residential building is proceeding but had a hiccup in the June quarter,” CommSec chief economist Craig James said.

“But the outlook is for more home building ahead and less spending on roads, bridges, railways and dams.”

Mr Strickland said home building activity must continue to rise to offset the mining investment downturn.

“Residential construction, although it is an important component of the economy and has been driving growth in NSW and Victoria, is still a relatively small share of the economy,” he said.

“The rate of increase in that is less than the expected rate of decline in engineering the coming quarters.”

Mr Hanlan said stronger June quarter construction work could boost next week’s economic growth figures, and partially offset lower exports.

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