Reuters/ AAP
Australia's construction sector contracted for a second straight month in April, as high interest rates and slumping customer confidence drove activity to its lowest in at least two years, a survey showed.
The Australian Industry Group/Housing Industry Association performance of construction index (PCI) sank 5.1 points to 42.6 in April. That was well below the 50.0 level separating expansion from contraction and the lowest reading since the survey began in September 2005.
"The result confirms that weakness in the construction industry has intensified, as tightening monetary and credit conditions weigh more heavily on activity levels," said AiG director, economics and research, Tony Pensabene.
The Reserve Bank of Australia raised interest rates to a 12-year high of 7.25 per cent in March, the second hike in as many months. Meanwhile, commercial banks have lifted their rates even further as the global credit squeeze raises funding costs, and have become more frugal in their lending.
"Underlying April's reduction in total activity was a fall-off in project work on a broad industry front with firms commenting that subdued market demand had led to increased competition for tenders," said Mr Pensabene.
New orders were at their lowest level in 20 months, suggesting the current weakness in activity was likely to persist during the months ahead, he added
The survey of 120 companies showed broad-based weakness with even the once red-hot engineering sector under pressure. The index for engineering dived 11.7 points to 45.6, a violent turnaround from the end of last year when it was up at 62.7.
Building of commercial properties like shopping malls and offices also dropped 10.3 points to 38.1 with firms complaining of tighter credit conditions, lower order volumes and delays on new projects.
The housing sector remained deep in the doldrums as mortgage rates and construction costs kept rising. The index of apartment building fell 9.3 points to just 30.5, the lowest reading since November 2006. The measure of house construction eased 4.5 points to 36.3.
As a result, demand for labour contracted, with that index dropping 9.2 points to 44.1.
Input prices remained high, with an index reading of 77.0, but growth in selling prices slowed markedly to 53.8, from 64.6 in March, suggesting a squeeze on profit margins.
The activity sub-index fell 8.4 index points to 38.2 points, with construction in housing, apartments, commercial property and engineering all declining.
"Reports from firms indicated that the fall in activity reflected a further reduction in levels of incoming work, citing the negative influences of higher rates, tighter liquidity, and weaker consumer and investor confidence," the report said. |
