Australian construction market shows improvements

Australia's construction market contracted for the 19th consecutive month in December, 2011, albeit at a slower pace. Increases in resource-related construction helped ease the rate of decline, but were offset by reductions in the house building sector.

According to information provider Australian Industry Group (AIG), the Australian Performance of Construction Index (Australian PCI) increased by 1.4 points to 41 in December compared to November, although it remained below the 50 point level separating expansion from contraction. The Australian PCI for December, 2010, stood at 47.5 points.

The December, 2011, PCI was boosted by engineering construction, which rose by 5.7 points to 51.3 - signalling a return to growth that AIG said was consistent with the current strength of the resources-related sector.

Offsetting this, the residential and commercial construction sub-indexes each continued to contract but at a slower rate, with a steep fall in house building.

Glimmer of hope

AIG public policy director Peter Burn said, "The increased pace of contraction in the house building sub-sector in December remains deeply concerning. Nevertheless, the easing of the pace of contraction in overall activity, and new orders across all sub-sectors, serve as glimmers of hope that 2012 may see a return to more balanced growth across the industry," he said.

The Australian PCI last breached the 50 point threshold in April, 2010, when it reached 57.5, but dropped back below 50 points in May that year and has remained there ever since.

Harley Dale, chief economist at the Australian Housing Industry Association, said, "There is a clear need not only for further interest rate relief but also for government action in terms of both shorter-term stimulatory measures and a re-invigorated policy reform."