Australian construction index falls to lowest in two years

Australian construction index falls to lowest in two years
Published: 07 April 2011

Australia’s building industry contracted for a 10th month in March as higher borrowing costs weighed on construction, a private survey showed.

The construction performance index dropped 5.2 points to 39.4 last month, the lowest level since March 2009, according to a survey by the Australian Industry Group and the Housing Industry Association released in Sydney today. A reading below 50 indicates the industry is shrinking.

Reserve Bank of Australia Governor Glenn Stevens this week held the benchmark interest rate unchanged at 4.75 per cent after boosting borrowing costs seven times from October 2009 to November 2010 to contain inflation. Australian home-building approvals declined in February for a second straight month, a government report showed last week.

“The slump across the sector reflects a variety of factors – the ongoing dampening impacts of last year’s interest rate rises, the caution on the part of house and apartment buyers and the failure of private sector commercial construction projects emerging to take up the slack as stimulus projects are completed,” Peter Burn, director of public policy at the Australian Industry Group, said in a statement.  “Nevertheless, an anticipated stronger inflow of infrastructure and resource based construction work is likely to provide critical support to overall levels of activity as we progress through the year.”

A gauge of apartment building plunged 15.7 points to 30.4 in March, today’s report showed. The measure of new orders fell 3.8 points to 39.4, engineering work slumped 13.5 points to 38.5 and commercial work declined 9.2 points to 33.2, the report showed. (Edited report from Bloomberg).