Construction activity is likely to fall in 2Q16, but public infrastructure spending is rising. Earlier (1Q16) commencements data suggest some early signs of the long-awaited upswing in infrastructure spending. Whilst this will support construction activity as a whole, it is unlikely to be enough to offset headwinds in the private engineering and non-residential construction segments.
The economy’s ongoing difficult transition away from the mining sector remains a dominant feature of the economic landscape. As an early partial component of the 2Q16 GDP outcome, the construction data will provide some early clues to where we stand now. Our expectation and the consensus point to little challenge from the construction data to the prevailing view that the 2Q16 GDP outcome is likely to be a soft one.
The fiscal backdrop is a key component of the policy landscape and the infrastructure outlook. Several components of the fiscal backdrop have changed since the 2016/17 Budget in May, not the least of which is the composition of the Parliament following the election. Federal coffers are, luckily, receiving a boost from the rise in the A$ iron ore price, which is currently exceeding expectations. The breaking of the revenue ‘drought’ may only prove temporary. And Treasurer Scott Morrison is likely to focus on the need to progress unlegislated savings measures as a key component of the government’s medium-term plans to return the federal budget to surplus.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
