Interpac Business and Migration Solutions Melbourne Australia

(July 7, 2010)

CONSTRUCTION activity contracted for the first time in four months in June, weighed down by tight credit conditions and subdued demand.

The Australian Industry Group/Housing Industry Association Performance of Construction Index was at 46.4 in June, down 6.8 points from May, falling below the 50-point level that indicates a contraction in activity for the first time since February.

House-building and apartment-building activity experienced particularly weak conditions, with both sub-indices indicating a contraction.

However, engineering construction was back in positive territory in June and commercial construction also strengthened.

“While the result in the housing sub-sector relates only to a single month, it could reflect the delayed impact of the withdrawal of the extra first-home owner's grant and the cumulative impact of the run of interest rate increases from last October.

Said AIG director of public policy Peter Burn: “The housing outcome together with the continuing weakness of the apartment sector reinforces other signs of flat household spending.”

Since last October, the Reserve Bank of Australia has lifted interest rates significantly, with six rate-rises in its last nine meetings to the current 4.5 per cent level. But after the string of hikes, the country's central bank has now paused in each of its last two meetings, including its latest meeting yesterday.

The survey indicated that contraction was likely also in the coming months, with the sub-index for new orders also in decline.

The HIA’s chief economist, Harley Dale, said: “As the impacts from past stimulus measures wane, higher interest rates and significant supply-side obstacles are combining to stop the residential recovery in its tracks, when non-residential building remains very weak once stimulus to this sector is taken into account.”

(Source: theAustralian)