Q4 Construction activity recovered over the second half of 2024
Construction activity grew 5.0% over the six months to the end of 2024 in annualised terms, a step up from the fall of 1.3%yr recorded over the first half of 2024 (also in annualised terms). Despite this, inflationary pressures continue to ease, pointing to improving capacity in the sector.
Construction activity grew 0.5%qtr in the December quarter. This was softer than the 1.0%qtr expected by the market and Westpac. Despite the quarterly miss, upward revisions to the previous quarter (from the initial estimate of 1.6%qtr to 2.0%qtr in today’s release) saw the year-ended growth of 1.8%yr come in broadly in line with our forecasts.
There was a familiar theme running through today’s numbers. Public activity continued to expand, up 1.8% in the December quarter driven by large scale infrastructure projects. On the other hand, private activity continued to moderate, falling 0.1% in the quarter to be 0.2% lower in annual terms.
However, we are now starting to see some green shoots in the private sector outside the non-resi space, where activity has stabilised and started to increase: private residential construction increased 0.7% in the quarter after posting a 2.6% increase last quarter, while private engineering construction (including infrastructure tied to energy generation) also grew 2.0%qtr for a second consecutive quarter, more than offsetting the falls recorded over the first half of 2024.
The weakness is very much concentrated in private non-resi construction (such as commercial, office and industrial floorspace) which fell 5.4%qtr to be almost 14% below the peak recorded in the December quarter 2023.
What does this mean for the balance between demand and supply?
Construction activity picked up over the second half of 2024, growing around 5.0%yr over the six months to the end of 2024 in annualised terms, compared with a fall of 1.4%yr over the first half of 2024 (also in annualised terms).
Despite this pickup, inflationary pressures continue to ease, running below pre pandemic levels for engineering construction and trending lower for resi and non-resi buildings. Consistent with this, today’s monthly CPI showed the cost of constructing new dwellings moderated further in January to 2.0%yr - weakest annual rise since June 2021.
This clearly suggests that some of the capacity constraints faced by the sector have started to ease and that, combined with the pull back in non-resi construction, demand and supply have come into better balance.
Sector detail
The 0.5%qtr lift in total construction activity was centred mostly in infrastructure works, up 1.8%qtr. Over the past year, the public sector has been responsible for most of the growth in infrastructure activity, up 8.6%yr with the private sector recording growth of 1.2%yr (mainly in the second half of calendar 2024).
While infrastructure activity was the main support to overall construction works in the quarter, residential construction continued to increase, up 0.9%qtr to be 5.7% higher in annual terms. This was driven by both the construction of new dwellings (+0.9%qtr) and renovations (+1.1%qtr). It is encouraging to see private activity cycling through the still-sizeable pipeline of dwelling construction projects, suggesting that some of the pressures bearing down on the sector are starting to ease.
Non-resi construction disappointed in the quarter, falling 3.1%qtr driven entirely by a 5.4%qtr fall in the private sector as projects come to completions. This fall was partly offset by activity in the public sector, which grew 1.8%qtr to remain close to its peak this cycle.
State detail
Engineering construction continued to underpin the pickup in activity across most of the states, with total building activity (resi and non-resi) continuing to slow.
Western Australia remains the clear front-runner in construction activity across the states (+7.7%yr), driven mostly by a rapid pace of infrastructure expansion (+10.3%yr) while building construction remains positive but continues to moderate (+1.5%yr).
Both Victoria and NSW are tracking the same annual pace of 1.4%yr. Both states share a similar underlying picture across the buildings and infrastructure split: with infrastructure works remaining robust (+5.1%yr in Vic and +3.1%yr NSW), while growth in total building activity continues to moderate (flat in NSW and -0.6%yr in Vic). Activity in Qld fell in the quarter but remains 0.6% higher in annual terms.
South Australia and Tasmania saw declines in total construction activity (-2.2%qtr and -5.9%yr, respectively).
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Australia and NZ Weekly 28 April 2025
Australia and NZ Weekly 28 April 2025
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