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Australia's Construction Sector Slows Down, But Expects Mild Landing

Strategic Insights

— 1 min read

The Australian construction sector has been heading towards the bottom of its current slowdown, with the Reserve Bank of Australia (RBA) increasingly likely to leave interest rates on hold. Despite a 6.8% decline in building approvals in March, seasonally adjusted, and a 19.1% fall in the year to March, Commonwealth Bank chief economist Michael Blythe believes the downturn is nearing its trough. Construction approvals are expected to feel a soft landing rather than a sharp crash, with economists predicting a relatively mild impact on the economy.

Key Takeaways:

  • Building approvals fell 6.8% to 12,270 units in March, seasonally adjusted, and declined 19.1% in the year to March.
  • Commonwealth Bank chief economist Michael Blythe believes the construction downturn is nearing its trough, indicating a soft landing rather than a sharp crash.
  • The Reserve Bank of Australia (RBA) is expected to hold interest rates steady, as construction remains a marginal factor in their current thinking.
  • RBC Capital Markets senior economist Michael Every states the data is much weaker than expected, suggesting an immediate impact from the RBA's recent rate hike.
  • UBS chief economist Scott Haslem highlights a sharp drop in private approvals in the volatile units and apartments category, falling 25.5% in March.
  • The trend in house approvals remains broadly flat over the past six months, while units and apartments have returned to their lows late last year.

Statistics:

  • Building approvals declined 19.1% in the year to March.
  • Private approvals in the units and apartments category fell 25.5% in March.
  • The trend in house approvals remains broadly flat over the past six months.
  • Units and apartments approvals have returned to their lows late last year, with commencements at a 136,000 rate.
  • For the past six months, house approvals have remained constant, while units and apartments have shown a decline.

Sources:

  • Asia Pulse - Australia's construction sector heading towards slowdown
  • Australian Bureau of Statistics
  • Commonwealth Bank chief economist Michael Blythe
  • RBC Capital Markets senior economist Michael Every
  • UBS chief economist Scott Haslem

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