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Home / Business / The downturn in Australia’s residential construction sector has gone from bad to much, much worse

The downturn in Australia’s residential construction sector has gone from bad to much, much worse



  • The construction sector in Australia has gone from bad to worse by the end of 2018.
  • Activity levels have declined at the fastest pace in over five years. For the residential sector, in particular for the construction of apartments, activity levels have basically collapsed.
  • The weakest conditions were also found in commercial and engineering construction.
  • New orders – a major indicator of activity levels – also fell faster. Declines have been seen in all parts of the industry.
  • Analysts argue that the crisis will weigh on the broader Australian economy.

The Australian construction sector has gone from bad to worse by the end of 201

8.

Activity levels have weakened across the board last month while apartment construction has virtually collapsed.

The Performance of Construction (PCI) index of the Australian Industry Group (PCI) fell to 42.6 points in December in seasonally adjusted terms, down 1.9 points compared to November

. The PCI measures have seen changes in levels of activity in the building sector in Australia from a month to the next. Any value above 50 indicates that activity levels are improving, while a reading below suggests that they are deteriorating. The distance from 50 indicates how fast activity levels are expanding or contracting.

So at 42.6 it indicates that not only did the levels of activity weaken again during the month, they did so at the fastest pace in over five years. [19659007] As you can see in the table below, it is a clear breakthrough in terms of what is seen for most of 2017 and the first half of 2018.

If the PCI title was enough to make you feel a bit "Uncomfortable about the prospects for in the industry, it's best not to look at the following table that breaks down the report into individual components.

It's horrible, especially for the residential construction sector where the apartment has practically collapsed.

Looking at the right side of the table, he shows that activity levels in all sectors of the industry have weakened during the month, including the engineering sector. This is an area that has maintained wider activity levels for much of the last year.

For the first time in 22 months, activity levels were weaker than a month before.

"This coincided with the reports by some participants of a loosening in new procurement opportunities towards the end of 2018", said Gruppo Ai.

Like the main PCI, a figure below 50 indicates a deterioration in activity levels compared to a month before The distance from the 50 indicates how severe the weakening was.

When it came to the residential sector, especially for the construction of apartments, the news was terrible.

"The condominium was the weakest sector, declining for a ninth consecutive month and at the highest rate since mid-2012," said Ai Group.

"House-building has also fallen into negative territory with the contraction rate of the most pronounced sector in just over six years."

So the conditions reported throughout the residential sector were terrible, suggesting that there will probably be more weakness in Australia approving the buildings in the coming months, creating potential downside risks to employment and GDP growth given the vastness of the sector.

At the end of what was a generally weak performance in December, activity levels throughout the commercial sector also weakened for the fifth consecutive month, and at a slightly faster pace than in November.

Reflecting performance by sub-sector, activity measures were also implemented for strict vision.

New orders – a leading indicator on future levels of activity – have declined at a more pronounced rate than November with decreases in all sectors [19659007] "The further decline in new orders is worrying because the industry seeks growth opportunities at the start of 2019, "said Ai Group.

Margin pressures were also acute as production costs rose while final sales prices fell sharply.

"The input price index fell 1.1 points to 72.0 points, indicating that cost pressures decreased slightly during the month but remained significant." The selling price sub index is decreased by 6.5 points to 40.6 points in December, highlighting the strong competition among manufacturers that is lowering the sales prices of buildings, "said Ai Group.

"The current gap between these price series shows that profit margins remain rigid for many companies in the construction sector."

Respondents said they are undergoing significant cost pressures due to high prices Energy and price increases related to the strength of commodity prices. They also noted "increasing difficulties in filling qualified vacancies and in finding construction materials in the volumes required for large projects".

So the crisis in the entire sector may not only concern the weakening of final demand, but other factors such as lack of supply and the ability to find suitable staff.

On this front, companies cut staff for a fifth consecutive month in December, even if only at moderate levels.

"It indicates a general reluctance of companies to increase their workforce capacity amid the continuation of weak aggregate demand," said Ai Group.

With conditions across the industry deteriorating at a faster pace, Peter Burn, policymaker of the Ai Group, said the crisis will weigh on the broader economy.

"With an estimate of construction close to 10% of GDP and employment, the recession in this sector will weigh on the global economy," he said.

Geordan Murray, principal reciting economist at the Australia & # 39; s Housing Industry Association, said that after adding to economic growth in previous years, the residential construction industry will likely reduce l & # 39; # 39; economic activity this year

"The mitigation of new orders suggests that completed projects will probably not be supported by new projects that will enter the pipeline," he said.

"The volume of residential construction activities is set to decline in 2019. The residential building will not be the engine of economic growth that has been in recent years."

Murray said the link between stricter lending and falling house prices in the eastern real estate markets of Australia "weighed heavily on residential construction during the last phases of 2018".

The construction PMI in a weak month of activity indicators in Australia. According to separate reports of the Ai Group, activity levels have slightly improved in the service sector while those in the manufacturing sector have declined.

As an indicator of the Australian economy, the readings describe a rather negative picture of how the economy was developing at the end of 2018 after a sharp slowdown in the September quarter of last year.

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