Bleak outlook for construction, building players: ANZ

The bank says pressure clearly remains on the building industry as economic uncertainty rises and the lingering effects of the credit crisis continue to impinge the free flow of credit to developers. ANZ economist Alex Joiner said residential construction was historically one the most cyclical elements of the Australian macro economy. “With almost all analysis suggesting Australia has an undersupply of housing stock, a positive aspect to Australia’s economic outlook was the perception that residential construction would not collapse,” Joiner said today in a statement. Today’s report, combined with the Australian Industry Group–Housing Industry Association Performance of Construction Index (Australian PCI) released earlier today, suggests this may not be the case. The Australian PCI fell 1.1 points to 30.9, remaining below the critical 50 points level separating expansion from contraction for the 10th consecutive month. “As we begin the new year, the results provide little doubt that the construction industry remains under substantial pressure as the economic and financial crisis continues to adversely affect market confidence and demand for building projects,” said Ai Group associate director of economics and research Tony Pensabene.“Furthermore, we are continuing to see conditions deteriorate on a broad industry front.” Pensabene said the engineering and commercial construction sectors were being hit hard by the lack of credit availability and the reluctance of clients to commit to new projects. “There are, as yet, no signs emerging from the Australian PCI of a boost to demand for house building, following recent interest rate cuts and changes to the First Home Owners Scheme,” he said. Joiner said the numbers suggested that players in the engineering and construction industries may need to revise down their growth forecasts further, which raises the clear risk that the Australian economy will contract in 2009. He said the ANZ continued to expect the Reserve Bank of Australia to make a 50 basis point interest rate cut in February.

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