After posting some healthy looking results over recent quarters, figures released today show Australia’s economy contracted during the September 2016 quarter marking the first quarterly decline in Gross Domestic Product (GDP) since 2011 and only the third quarterly decline in the last decade. A decline in GDP was not unexpected, however the magnitude of the decline makes the result worthy of closer scrutiny, said the Housing Industry Association, the voice of Australia’s residential building industry.

“The value of investment in residential building declined by 1.4 per cent in the quarter, however it remains 7.2 per cent higher than in the September quarter a year earlier. 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,” said Geordan Murray, HIA Economist.

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 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. 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.”

“With GDP contracting by 0.5 per cent in the September quarter it will be tempting to 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. A reduction in defence expenditure was a significant item, while there was also a significant reduction in capital investment by state and local governments,”

“Looking at private sector investment, results 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. In addition, the widely anticipated contraction in mining related engineering investment continues to weigh on growth,” concluded Geordan Murray.

See also:

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