Falling construction levels to continue

The peak body for the nation's construction industry believes a dip in construction work in the June quarter is only the tip of the iceberg, predicting a sharp decline to unfold as the effects of credit crunch and economic downturn begin to show through.

Following the release of the Australian Bureau of Statistics' construction work done report for the June quarter, which showed total work completed fell by a seasonally-adjusted 0.1 per cent, Master Builders Australia chief economist, Peter Jones said there will continue to be substantial fallout from financial constraints and a weak economy on the building and construction industry.

"Government stimulus measures will help cushion the blow, but they will not be enough to prevent a major downturn in construction over the next 12 months," Mr Jones said in a statement.

A total $35 billion worth of construction work was completed in the three months to June, underpinned by a solid increase in engineering.

However, economists' forecasts had centred on a three per cent fall in the June quarter.

"Non-residential building has already suffered a 10 per cent decline with the boost from public stimulus programs set to be swamped by a major fall in private sector work," Mr Jones said.

"Commercial builders are being choked by tough lending criteria imposed by financial institutions and funding issues and softening market conditions is leaving a significant hole in activity."

"The pipeline of non-residential work is beginning to dry up, with work-yet-to-be-done declining by 12 per cent in the June quarter."

"Residential building activity experienced another ratchet down in activity, although conditions will recover late this year and into next as lower interest rates, the first home owner 'boost' and social housing initiatives help drive an upturn."

"Nonetheless, with the housing sector facing twin hurdles of weak investor activity and the end of the 'boost' scheme, dwelling investment is unlikely to significantly contribute to economic growth until well into 2010."

"Engineering construction rose in the June quarter and the pipeline of resources-related work yet to be done and State Government infrastructure spending should cushion the impending fall."

"The key to the outlook for the construction industry will be whether an upswing in the residential sector can offset the decline in non-residential building and weaker engineering activity."

Total building work fell 5.7 per cent to $16.83 billion in the quarter, with residential residential building down 2.6 per cent at $9.72 billion.

Economists expect this latter segment will improve in coming quarters given the recent strength of home building approvals - lifted by demand from first home buyers that have been lured to the housing market by low interest rates and a more generous grant from the government.

Non-residential building work fell by 9.5 per cent, but engineering work jumped by 5.7 per cent to $18.2 billion.

The data feeds into next Wednesday's June quarter national accounts.

Full announcement from MBA below:

BIG FALL IN BUILDING WORK DONE AS CONSTRUCTION STRENGTH BEGINS TO FADE
Statement by Mr Peter Jones, Chief Economist

Construction work done dipped again in the June quarter with a sharp decline set to unfold as the effects of credit crunch and economic downturn begin to show through, according to Master Builders Australia, the peak body for the building and construction industry.

Mr Peter Jones, Master Builders Australia's Chief Economist said, "There will continue to be substantial fallout from financial constraints and a weak economy on the building and construction industry."

"Government stimulus measures will help cushion the blow, but they will not be enough to prevent a major downturn in construction over the next 12 months."

"Non-residential building has already suffered a 10 per cent decline with the boost from public stimulus programs set to be swamped by a major fall in private sector work."

"Commercial builders are being choked by tough lending criteria imposed by financial institutions and funding issues and softening market conditions is leaving a significant hole in activity."

"The pipeline of non-residential work is beginning to dry up, with work-yet-to-be-done declining by 12 per cent in the June quarter."

"Residential building activity experienced another ratchet down in activity, although conditions will recover late this year and into next as lower interest rates, the first home owner 'boost' and social housing initiatives help drive an upturn."

"Nonetheless, with the housing sector facing twin hurdles of weak investor activity and the end of the 'boost' scheme, dwelling investment is unlikely to significantly contribute to economic growth until well into 2010."

"Engineering construction rose in the June quarter and the pipeline of resources-related work yet to be done and State Government infrastructure spending should cushion the impending fall."

"The key to the outlook for the construction industry will be whether an upswing in the residential sector can offset the decline in non-residential building and weaker engineering activity."

Seasonally adjusted, the chain volume of construction work done in the June quarter fell by 0.1 per cent to $35.0 billion to be 5.4 per cent above levels in June quarter 2008.

The chain volume of building work done in the June quarter was down by 5.7 per cent to $16.8 billion, to be down 8.5 per cent on the previous June quarter.

Work done on residential building fell by 2.6 per cent to $9.7 billion, to be down 7.6 per cent on the corresponding figure a year earlier.

Non-residential building fell by 9.5 per cent to $7.1 billion, to be down 9.8 per cent on June quarter 2008.

Engineering construction work done rose by 5.7 per cent to $18.2 billion to be up 22.7 per cent on the previous June quarter level.