Australia's economy expanded at a marginal pace during the September quarter, slowed down by the slump in three sectors, including residential construction.
Figures from the Australian Bureau of Statistics (ABS) show that Australia's GDP grew by 0.4% on a seasonally adjusted basis, down from the market consensus of 0.5%.
"The economy has continued to grow; however, the rate of growth remains well below the long-run average," said Bruce Hockman, ABS chief economist.
On an annual basis, Australia's economy grew by 1.7%, well below the growth-rate trend of 3%.
The underwhelming economic growth during the quarter was attributed to the slowdown in three sectors: engineering construction, residential building, and private business investment.
All states except Tasmania and Victoria reported declines in construction activity. South Australia witnessed the most significant decline in construction work.
Also read: Approval decline becomes “alarming”?
The slow conditions in the construction sector are not helpful from the point of view of encouraging businesses to invest, said Master Builders Australia Chief Economist Shane Garrett.
"Clearly, the pace at the construction of new infrastructure is being commenced is holding back not just construction activity but the entire economy. The weakness of construction activity is clearly hurting growth in other areas of the economy too," he said.
The lift in GDP appears to be concealing a "worrying decline" in housing construction, said Ken Morrison, Property Council of Australia chief executive.
Home-building declined by 2.1% during the quarter while multi-unit construction dropped by 3.7%. Over the past year, dwelling construction investment has decreased by 11%.
"This means fewer housing construction jobs, and fewer houses being supplied to our growing population especially in our major cities," Morrison said.
Morrison said residential construction is one of the biggest growth engines of the Australian economy.
"It's also essential for ensuring we have a strong pipeline of new housing coming to the market to meet demand and support affordability," he said.
Morrison said these should be taken as a sign that the recent recovery in housing prices is not translating into new construction and economic activity.
"The Commonwealth, state and territory governments need to a take holistic view of the housing sector and deliver the right policies and planning schemes to stimulate investment and support growth," he said.
Garrett shared the same sentiments, adding that there is a need for the government to do more to accelerate the construction of infrastructure projects.
"While mega-projects take time to activate, there are many opportunities to fast track smaller projects outside Sydney and Melbourne, including in regional Australia. Many of these can be delivered by smaller and local construction contractors, which help to multiply the economic benefits," he said.
During the quarter, household consumption barely moved, up by only 0.1%. This was despite the recent tax and rate cuts, which were expected to boost spending.
The weak household consumption could increase the likelihood of further rate cuts from the Reserve Bank of Australia, said NAB analyst Kaixin Owyong.
"This suggests that the underlying health of the economy has deteriorated further and is likely to put upward pressure on the unemployment rate. That reinforces our view that further monetary easing is needed," she said.
