Growth in the construction industry continues to slow concludes the Australian Industry Group/Housing Industry Association Performance of Construction Index for May.
Construction activity grew for the third consecutive month in May, however the rate of growth has slowed, with the Reserve Bank of Australia’s six increases in interest rates within eight months curbing expenditure in the sector.
The latest seasonally adjusted Australian Industry Group/Housing Industry Association Performance of Construction Index was 53.2 in May, down 2.6 points but still above the 50 point level indicating an expansion in activity.
House building experienced the strongest conditions with a lift in new orders and increased investor activity. This was in stark contrast to the apartment building sub-sector which recorded a sharp decline in May with the sub-sector index down 16.8 points, as developers continue to struggle to find finance in the wake of the Global Financial Crisis.
Australian Industry Group Director Public Policy, Dr Peter Burn viewed the overall result as positive, but considered the housing sector to be fragile and subject to external risks, particularly around the cost of credit.
“The continued expansion of the construction sector as a whole and the ongoing growth of new orders in housing, engineering construction and commercial construction are positive signs that the recovery in the sector is gaining traction following the difficulties of the past couple of years.”
“However, there is some cause for caution in the May Australian PCI. The volatile apartment sub-sector underperformed in May and there is a continuation of the weakness of new orders in this area evident since January.” Dr Burn said.
Housing Industry Association Senior Economist, Ben Phillips believes the winding back of the Federal Government Stimulus is playing out in the market.
“The continued strength for home building activity is a positive for the industry, however, the industry remains concerned about a likely downturn once government stimulus has run its course. ”
“The apartment segment continues to underperform highlighting the fragile nature of this credit constrained market,” Mr Phillips said.