Construction boom helps balance slowdown

SYDNEY - The construction industry boomed in the June quarter as spending on engineering projects hit an all-time peak and commercial building activity jumped to its highest level since 1990.

Total construction activity rose 4 per cent to a record of A$22.05 billion ($24.22 billion), in inflation-adjusted dollars, and even home building showed some life after months of lacklustre activity.

The strength surprised many analysts and supported the central bank's view that higher business spending would help balance a slowdown in domestic demand.

"The data were clearly stronger than expected and show there's still considerable momentum in construction activity," said Spiros Papadopolous, an economist at National Australia Bank.

"They imply a bigger contribution to GDP growth than many were looking for, so forecasts for Q2 GDP could be revised up."

Figures on gross domestic product (GDP) for the June quarter are due on September 7 and had been expected to show year-on-year economic growth slowed further from the already sluggish 1.9 per cent recorded in the first quarter.

"It does suggest that we get reasonable growth in the second quarter," said Brian Redican, senior economist at Macquarie Bank.

"We have had some downside surprises on things like retail spending in Q2.

"So what was looking a little bit skinny on the growth side, these kind of numbers should ensure that overall activity is reasonably strong."

The seasonally adjusted value of non-residential building jumped 10.8 per cent in the quarter to A$4.91 billion, its best result since the March quarter of 1990.

Residential building posted a surprise 3.4 per cent increase in value, bouncing back from four straight quarters of falls.

Spending on engineering projects rose a more modest 0.9 per cent, but that came after a hefty 8.8 per cent jump the previous quarter and left the value of work completed at a record A$8.04 billion.

Engineering had taken the place of housing as the main driver of construction activity as a boom in commodity prices drove huge new investment in mining and infrastructure projects.

- REUTERS