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Australia’s economy contracted during the September 2016 quarter, marking the first quarterly decline in GDP since 2011 and only the third quarterly decline in the last decade.
The value of investment in residential building declined by 1.4 per cent in the quarter, although it did remain 7.2 per cent higher than in the September quarter a year earlier.
The Housing Industry Association says a drop in GDP was not unexpected, but the magnitude of the decline required scrutiny.
“In the context of the residential building cycle reaching a record high, the decline in investment in the sector and the role that it played in the overall contraction in GDP is likely to be a point of discussion,” HIA economist Geordan Murray said.
Mr Murray pointed out that the 1.4 per cent decline in aggregate investment in residential building was the result of a 1.6 per cent decline in work done on building dwellings and a 1.0 per cent reduction in renovations activity.
“Quarter by quarter fluctuations are expected and poor weather has been blamed for the weak result for the construction sector in the September 2016 quarter,” he said.
“The latest quarterly decline is not likely to herald the turning point for residential investment just yet.
“There is still a significant volume of work that remains to be done on projects at various stages of construction which will see the level of investment remain at a historically high level over the next few quarters.”
Mr Murray said the GDP’s contraction in the September quarter would tempt a focus on the negative headline result.
“It is worth noting that the most significant factor detracting from growth was a reduction in capital investment by the various levels of government,” he said.
“A reduction in defence expenditure was a significant item, while there was also a significant reduction in capital investment by state and local governments,”
Mr Murray said results in private sector investment continue to be mixed.
“On the positive side, investment in machinery and equipment increased, and the agricultural sector made a strong contribution to growth.
“However, this was outweighed by quite a significant drop in new non-residential building along with the modest reduction in residential building investment.”
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