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By Australian associated Press
December 3, 2017
A surge in civil construction and engineering activity has driven a spike in the value of construction work for the second consecutive quarter, but economists are not agreed whether the outlook is as rosy as the figures might suggest.
In raw numbers, the value of construction work done jumped 15.7% in the September quarter to $61.9 billion. It was mainly bolstered by a 33% surge in engineering work, including mines, roads and bridges, with the civil and engineering sector accounting for $34.2 billion of the total.
Total building work on residential and commercial projects, however, fell 0.4% to $27.6 billion in the quarter.
The market had expected a decline in overall construction work of 2.3%, following a 9.8% rise in the three months to June.
According to JP Morgan economist Tom Kennedy, the outperformance was based on technical factors rather than a genuine resurgence in capital expenditure. "As we noted in the second quarter, this is an implausibly large increase and is unlikely to represent genuine real domestic value-add."
Mr Kennedy says he suspects it is a reflection of the Bureau of Statistics marking the full value of mining related structures as 'work done' in one lump when installation is completed, rather than incrementally. On the other hand, he says, national accounts data is compiled differently as it is attempting to capture the flow of construction work and capital expenditure as it occurs over time.
Other economists say the strong numbers were likely due to imports of LNG installations for projects in Western Australia. Stripping out the impact of the LNG platforms, engineering construction likely rose modestly, with particular strength in NSW and Victoria on the back of construction of public infrastructure, they say.
Outside of the apparent strength in engineering activity, other details in Wednesday's report were soft, ANZ senior economist Felicity Emmett says.
"Both housing and non-residential construction fell modestly, while underlying engineering construction activity looks to have been weak in WA and NT," she says. "Overall, we expect private construction to make little contribution to GDP growth."
South Australia’s civil and engineering sector has already been given notice the good times could be soon coming to an end, with potential job losses of up to 10,000 construction sector roles within the next three years.
The warning came from a BIS Oxford Economics report prepared for the Civil Contractors Federation, released earlier this month.
The report explains the state still faces major challenges from the end of the mining boom and the demise of traditional manufacturing, As "The South Australian economy is expected to continue to underperform after 2017/18 as the current investment cycle unwinds."
It says SA should concentrate on leveraging its core strengths compared to the eastern states including the lower cost of living and lifestyle benefits. It should also focus on key sectors including defence and tourism.
"Ultimately, the solution to South Australia's economic challenges will involve reversing decades of weak population growth and addressing the relative underperformance in attracting private investment - all of which will take time," the report says.
CCF chief executive officer Phil Sutherland said SA's major political parties should use the report as a "blueprint to the future".
"This report is both alarming and is a reality check," Mr Sutherland says.
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