Construction work performed during the March quarter fell by 2.6%, according to the Australian Bureau of Statistics. Engineering work fell 4.2%, and commercial building slumped 5.5%. However, residential construction work performed during the March quarter rose 1.5% to a record high, making a rise of 5.7% for the year.

The data show that housing construction is taking over from mining as a major driver of the economy.

Craig James, chief economist of CommSec, said, "The 'baton pass' from engineering to residential building is clear for all to see. Engineering work continues to recede while home building has hit new highs."

During the March quarter, the annual rate of inflation in the construction sector rose from 1.9% to 2.3%, a growth rate of 0.5%, the fastest annual growth rate in nearly five years. Inflation in the sector rose 0.5% during the quarter.

"Inflation in the building sector seems to be more subdued than in the past year," said James.

"The more sedate 0.5% March quarter inflation reading resonates with the modest consolidation taking place in the housing sector and adds to the lack of inflation across the broader economy," he said.