Australia construction shrinks at fastest pace in 12 months

Australia construction shrinks at fastest pace in 12 months
Published: 06 August 2010

Australia’s building industry shrank in July at the fastest pace in a year, adding to evidence the central bank’s six interest rate increases between October and May are eroding demand for new dwellings.
The index fell 3.1 points to 43.3 from June, according to a survey by the Australian Industry Group and Housing Industry Association released in Sydney today. A reading below 50 shows the industry is contracting.

Australia’s central bank paused in raising borrowing costs this week for a third month, and said the level of its benchmark is appropriate. The drop in today’s construction index was led by a slump in demand for engineering and commercial construction.

“Consumer and business caution is detracting from demand across the industry,” said Peter Burn, director of public policy at the Australian Industry Group. The decline is “slowing the momentum of recovery in the broader economy.

“Businesses in the construction industry are competing vigorously for new work, with a nervous eye both on their order books and emerging wage pressures,” Burn said.

A gauge of engineering work tumbled 16.7 points to 36.2 in July and commercial work slid 16.5 points to 35.3, today’s report showed. Apartment building gained 1.1 points to 45.1.