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Sharp decline eases for PCI but long road ahead

 

The contraction in construction activity has slowed but business conditions are still negative in the Australian Industry Group’s Australian Performance of Construction Index for June 2020.

The Australian PCI reported an increase to all four sectors for June, with an overall rise of 10.6 points to 35.5 in June.

House building (up 19.4 points to 39.6), apartment building (up 23.2 points to 44.8), commercial construction (up 8.5 points to 26.6) and engineering construction (up 19.4 points to 39.6) all saw marginal rises, which the Australian PCI suggests could be from recent government grants and the reopening of display homes in some states.

While the index is firmly planted in the negative space (scores below 50 show contraction), there are signs that business conditions are not as bad as they have been since the impact of COVID-19. The Australian PCI experienced its 22nd consecutive month of contraction in June but the overall decline has slowed after record lows in April. Construction activity increased by 13.7 to a stark 35.1 points in June.

Ai Group head of policy Peter Burn said it will be sometime before a significant recovery is seen in the industry.

“While continuing to contract, the pace of decline in the construction sector eased in June following the sharp falls in April and May when activity levels and new orders collapsed in the wake of restrictions and heightened uncertainty,” he said.

“Nevertheless, construction activity, employment and new orders were all lower in June, suggesting that it will be some time yet before the industry recovers.”

The new order index was, according to the report, at “chronically weak levels” – sitting at 32.8.

“The easing of the rate of decline in building activity and new orders – for both houses and apartments – is a positive development following the return of potential homebuyers to the market, plus recent government support and incentives,” HIA economist Tom Devitt said.

“This should provide a valuable buffer, especially in states like WA where building pipelines were dangerously low. Even if the worst is now behind us, the lags involved mean the impact of the last few months will continue to weigh on construction activity in the second half of the year, and beyond for as long as migration rates and the broader economy remain below pre-pandemic levels.”

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