Australia Q2 construction work spikes in boost to economy

SYDNEY • Australian construction spending boasted its biggest rise on record last quarter as miners splashed out on major engineering projects, a surprise that could lift economic growth well above initial expectations.

Yesterday's figures from the Australian Bureau of Statistics (ABS) showed construction work done surged 9.3 per cent in the second quarter, from the first. That was the largest increase and dwarfed forecasts for a rise of just 1 per cent.

The rise amounted to a whopping A$4.4 billion (S$4.8 billion) in inflation-adjusted dollars, implying an addition to gross domestic product (GDP) growth of more than 1 percentage point.

A rebound would be welcome, given that weather disruptions kept growth to a pedestrian 0.3 per cent in the first quarter. Data for GDP is due next week and analysts were considering whether to lift their estimates. "I think there is a good chance we would bump up our GDP forecasts," said Mr Michael Blythe, chief economist at Commonwealth Bank. "We have had some very solid numbers and in areas we really didn't expect to see - in engineering and in Western Australia. An infrastructure lift is coming through in Victoria and New South Wales, so that's quite encouraging too."

The Reserve Bank of Australia has already factored in a bounce in activity in its economic outlook, one reason it is expected to keep interest rates steady for the rest of the year.

Construction spending in the mining-heavy state of Western Australia alone jumped 56 per cent in the second quarter. That concentration led analysts to suspect much of the increase might be tied to Shell's investment in a floating liquefied natural gas platform - the largest such facility. If so, the vessel would be recorded as an import at some point and thus subtract from national GDP, muddying the overall impact on the economy.

The ABS provides no detail on spending by individual companies or on particular projects.

Separate data from the agency out yesterday offered upbeat news on the outlook for housing construction, a mainstay of the economy in recent years.

Approvals to build new homes dipped 1.7 per cent in July to unwind only a little of June's hefty 11.7 per cent jump. Analysts had thought approvals might retreat by 5 per cent or more.

With approvals now holding at historically high levels, any future slowdown in construction looks set to be milder than many had feared.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 31, 2017, with the headline 'Australia Q2 construction work spikes in boost to economy'. Print Edition | Subscribe