(May 26, 2010)

The amount of construction work completed in Australia increased in the first quarter of the year at a pace indicating the economy isn't growing as strongly as earlier expected.

Total construction work done in Australia rose 1.9 per cent in the March quarter to $39.5 billion, according to the Australian Bureau of Statistics - less than the 4 per cent expected by analysts. The December quarter result was also revised to a fall of 0.2 per cent from an earlier reading of a 2.6 per cent increase.

''Construction work is important for the GDP growth number,'' said Macquarie senior economist Brian Redican. ''So the fact it's come out weaker than we thought does suggest that the economy was growing more modestly in the first quarter.''

''It's another reason, along with the global financial crisis and a slowing housing market, for the (Reserve Bank) to sit pat on rates rather than contemplate any further moves,'' he said.

The RBA has raised interest rates six times since October, most recently to 4.5 per cent this month from 4.25 per cent, in order to contain potential inflation pressures as Australia's economy recovers.

Overnight, debt markets were basically pricing in no change in the current RBA cash rate in one year's time, according to Credit Suisse. Investors, meanwhile, are rating the probability the central bank actually cut interest rates next time its board meets on June 1 as a one-in-five chance.

On the other hand, residential construction grew 0.9 per cent, seasonally adjusted to $10.6 billion, while engineering posted a surprise drop of 0.4 per cent to $19.7 billion, ABS said.

The March quarter construction work figure was boosted by government school building program contained in last year's stimulus program, said Mr Redican.

Public sector engineering work done increased by 5.4 per cent compared with a 2.9 per cent drop in private sector work. Public building work jumped by 29 per cent while there was a 0.6 per cent fall in private sector building work.

''The data clearly shows the impact of last year's fiscal package, with all of the strength coming from the public sector,'' said ANZ senior economist Shane Lee.

(Source from: theAge)