Australian construction activity declines

10 April 2008

Australia's construction industry deteriorated in March, its first decline in seven months according to the Australian Industry Group (Ai Group).

The Ai Group's Housing Industry Association Performance of Construction Index (Australian PCI) registered 48.4 in March, -5.5 points lower than February and below the critical 50.0 points level separating expansion from contraction.

Commenting on the latest results Tony Pensabene, Ai Group associate director, economics and research, said, "While engineering construction is benefiting from an expanding investment pipeline, particularly in infrastructure projects, house building, apartments and commercial construction all fell in March, dragging overall construction activity into negative territory for the first time in six months.

"Interest rate hikes, the rise in the cost of funds and falling consumer sentiment are clearly taking their toll on the industry, and with new orders now at their lowest level in 10 months, we are likely to see further weakness ahead," added Mr Pensabene.

Housing Industry Association chief economist, Harley Dale, said, "The decline in the Australian PCI is consistent with other indicators of new home building which have all deteriorated in recent months. The universal signal is that there will be a widening in the gap between housing supply and demand before the situation bottoms out."

Australian PCI key findings for March:

  • the Australian PCI fell by -5.5 points in March due to weaker commercial construction activity and a further fall in house and apartment building.
  • companys linked the fall in activity to higher interest rates, weaker consumer sentiment and greater caution from property developers.
  • this was reflected in a marked decline in the level of incoming, new work.
  • residential builders also cited the negative influences on activity of weakness in new home starts and declining housing affordability.
  • for the industry as a whole, activity and new orders posted large declines in March following rises in the previous six months. This was reflected in a reduction in supplier deliveries to their weakest level since August 2007.
  • despite the fall in overall activity, engineering construction was maintained at the highest rate in the past three months.

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