A higher than expected construction work result increases the risk of a strong economic growth number next week, economists say.

But the strengthening economy won’t be enough to convince the Reserve Bank of Australia (RBA) to lift interest rates as a series of data releases feeds into the second quarter GDP (gross domestic product) number next Wednesday.

“The risk is it’s going to be a pretty strong GDP number because we’ve got this to start with and there’s a little bit that will feed through to the capital expenditure data tomorrow and next week we’ve got what looks like a very strong net export contribution coming into GDP,” Nomura Australia economist Stephen Roberts said.

At this stage Mr Roberts has not revised his quarter on quarter GDP growth from 0.8 per cent.

“But it is subject to upward revision because it could be rather stronger than that.”

Total construction work done in Australia rose 3.5 per cent in the June quarter in chain volume terms, seasonally adjusted.

The Australian Bureau of Statistics (ABS) said on Wednesday total construction work done was valued at $41.655 billion in the June quarter, compared with an upwardly revised $40.264 billion in the March quarter.

The median market forecast was for total construction work done to have risen 3.0 per cent in the June quarter.

The ABS said total building work done in the June quarter was $21.419 billion, seasonally adjusted, from an upwardly revised $20.332 billion in the March quarter.

Engineering work done was $20.236 billion in the June quarter, from an upwardly revised $19.933 billion.

Mr Roberts said the result was a “confirmation” that the Australian economy was still doing very well during the June quarter.

“We’ve still got an economy that is moving along at a reasonable pace so it’s still a factor as far as the Reserve Bank’s concerned,” he said.

“It’s not enough to tip them in the very near term with the uncertainties of the election and uncertainty about the US.”

But he said if more evidence of inflation began to emerge, the Reserve Bank would be “brought back on the side of a tightening”.

“What’s most unlikely is any sort of easing.

“It’s not even remotely possible with an economy growing this strongly.”

National Australia Bank senior economist Spiros Papadopoulos said the construction done data should support some strong GDP numbers next week.

“There was some ongoing strength in the public numbers as we’ve seen over the past few quarters, but there was a bit of strength in the private numbers as well, especially on the residential side,” he said.

“I think on the basis of this release alone you wouldn’t make an interest rate call. Obviously there is a lot of data between now and Wednesday.

“In terms of the GDP figures, we know there’s been a bit of softness in the housing market following the interest rate increases that we had from October to May.

“This data is just reflecting the building work that’s been done for a lot of new home sales that would have occurred at the turn of the year.”

One of the factors in the strong building growth was the federal government’s schools construction program.

There was a 7.5 per cent rise in public sector building work done from the March quarter, seasonally adjusted, a private sector rise of 4.7 per cent.

Total building work done rose 5.3 per cent from the March quarter to the June quarter.

Mr Papadopoulos expects the private sector data to strengthen.

“I expect we’ll see some ongoing growth,” he said.

“There will probably be a rebalancing where the public sector will ease off and we’ll get more strength out of the private sector data.

“I expect there is still be a build up of activity that will keep these figures pretty strong for the next six to 12 months.”

Source:  Australian Associated Press

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