Construction work in Q4 was much weaker than anticipated, declining by 3.1%.
Detail
Construction activity surprised to the downside for a second consecutive quarter.
Q4 was a -3.1% vs an expected +0.5% market and +0.4% Westpac. That follows a -3.6% for Q3, revised lower from -2.8%. Key surprises were: public works, down sharply; and housing, falling at a more rapid pace.
The numbers are:
- Public works, -6.0% (including public infrastructure, -10.3%)
- Private construction, -2.2%; including …
- New home building, -3.6%;
- Renovations, -4.0%;
- Infrastructure, -1.3%; and
- Commercial building, -0.2%.
Comment
Over the second half of 2018, construction activity was much weaker than anticipated. This poses a downside risk to our forecast for Q4 GDP, which is currently 0.5%qtr, 2.7%yr.
It does help to explain the loss of momentum in business conditions evident in the private business surveys.
A key dynamic is that the new home building cycle has turned. Strong gains in Q1 and Q2, +4.3% and 4.0%, have been followed by sizeable falls in Q3 and Q4, -2.5% and -3.6%. The slump in dwelling approvals over the second half of 2018, following a strong run, points to the downswing being a significant drag on growth during 2019 and in to 2020.
Public infrastructure activity is the surprise – with a quarterly profile during 2018 of: +6.7%, +1.1%, -2.6%, and -10.3%. Possibly bottlenecks is a constraint or it may have been weather disruptions. Given the sizeable amount of work yet to be done and with new projects being add to the investment pipeline we expect public works to add to activity in 2019.
Tomorrow we receive an update on business investment, with the capex survey, ahead of the national accounts on Wednesday March 6.
