Growth driven by engineering, construction

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

 

A surprisingly strong rise in engineering work suggests economic activity has perked-up after a sluggish start to the year.

It will give the Turnbull government something to cheer about as it tries to get the focus back on the Australian economy when parliament sits next week, after the distraction of the citizenship fiasco.

New figures show construction work jumped by 9.3 per cent in the June quarter, buoyed by a 21.5 per cent surge in engineering.

Economists had expected an overall rise of just one per cent.

The rise in engineering, due to the installation of a large piece of LNG infrastructure for a West Australian project, comes after a more modest 2.7 per cent increase in the March quarter and many quarters of negative growth beyond that as the mining investment boom unwound.

Commonwealth Bank economist Kristina Clifton said outside of WA, engineering was also supported by solid infrastructure spending in other states.

The construction data feeds into next Wednesday’s national accounts for the June quarter.

Building construction was more subdued but not unexpected by economists.

Residential construction fell 0.4 per cent while non-residential construction rose 1.1 per cent.

“We expect residential construction to drift lower for the next couple of quarters before rising a little until the RBA begins lifting the cash rate,” Macquarie Research economist Shane Lee said.

The construction data joins already released retail sales and trade that also surprised on the upside.

Ms Clifton says while there are further reports to come before the national accounts, at this stage, the construction figures overall suggest there are upsides risks to CBA’s preliminary forecast for a 0.5 per cent GDP rise in the June quarter.

This would come after the limp 0.3 per cent rise in the March quarter and take into account the impact of Cyclone Debbie in late March.

Treasury had expected the cyclone that hit northwest Australia would reduce economic growth by about a quarter of a percentage point in the June quarter.

Thursday will see the release of business investment spending for the June quarter, followed by company profits and business inventories early next week.

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