Floods take toll on construction work

The national construction industry declined at a steeper rate in January than was expected, with the recent flooding adding to the already weak conditions in the sector, the Australian Industry Group says.

The January Australian Industry Group Australian Performance of Construction Index in conjunction with the Housing Industry Association fell 3.6 points to 40.2. This is the eighth consecutive month the index has been below the 50 point level which indicates a contraction in activity.

All four sub-sectors declined in the month, with significant falls across the apartment building (down 15.2 points) and engineering construction (down 19.6 points) sub-sectors.

Australian Industry Group director public policy, Dr Peter Burn, said: "While flooding and bad weather conditions have caused project delays and stoppages, higher interest rates, caution on the part of home buyers and businesses and tight credit conditions continue to hamper growth. The immediate outlook for the sector is not encouraging with new orders continuing to fall albeit at a slower rate than in December.

"As the post-flood rebuilding task takes hold over coming months, the sector is likely to see a pick-up in activity in some regions. However, the nation-wide pick-up in construction will be moderated by the recent announced deferral of some major infrastructure projects," Burn said.

Housing Industry Association senior economist, Andrew Harvey, said: "This is one of the weakest reports we have seen for some time and the broad-based nature of the weakness accentuates our concern. Hopefully, if we can believe last week’s building approvals numbers, we may see the apartment index improve, but housing has now contracted for eight consecutive months.

"New orders continue to fall in housing, apartments and non-residential construction. New home building activity is set to be considerably weaker in 2011 than was evident last year. In this environment, and given the considerable dwelling shortages that exist, it is unfortunate that policy support for housing is being wound back.”