Continued growth in engineering activity

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Engineering activity continues to show strength in Australia, despite a decline in overall construction activity in October


The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI)  declined by 2.9 points last month.

In contrast to the declining performance of residential and commercial construction, engineering construction grew further and faster (in trend terms) in October, playing an important counter-cyclical role and moderating the pace of job-loss across the broader industry. 

Ai Group Head of Policy Peter Burn says the longstanding wind-down of boom conditions in apartment building continued and was reinforced by further declines in the volume of work in the house building sector.

"To date there has been an orderly retreat from boom conditions in the apartment sector but the outlook is now very sensitive to any further increases in borrowing costs and possible changes in tax policy settings," he says.

"Looking ahead, conditions look more fragile than they have for some time with new orders declining further into negative territory driven by weakness in the apartment and commercial construction sectors with flat-to-steady pipelines of new work for the rest of the industry."

Housing Industry Association Acting Principal Economist Geordan Murray says the tighter lending environment is having a direct impact on activity in the housing market.

"Home prices in Melbourne and Sydney are easing and we are seeing fewer transaction," Murray says.

"This is partly due to APRA's interventions in the mortgage market and partly due to lenders pre-empting the outcome of the Royal Commission."

The economic environment that supported the expansion of residential building over the last few years has passed, according to Murray.

"The housing market has cooled and activity in the residential building sector is set to contract over the year ahead.

"At this juncture it will be important for the regulators to monitor the impact of their earlier interventions to ensure policy settings remain appropriate in the new phase of the cycle."


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