Daily Commentary BY THE CURVE TEAM –

Construction Holds Up

27th of August, 2020

Construction work done for Q2 beat market expectations.

The figure was down 0.7% for Q2, which beat the market expectation of a fall of 7%. This will feed into Q2 GDP, which will be retrospective.

More relevant will be construction as the economic recovery continues. It is expected that as building approvals have slowed and planned projects have declined that construction work done will continue to fall. This will have implications on employment especially.

There are calls from the RBA for the government to target infrastructure investment as a means to stimulate the economy. This would offset falls in construction in the private sector.

Private sector capital expenditure data for Q2 is out today, which alongside the construction work done data will give some indication of how hard the government could push an infrastructure agenda. It is expected private capital expenditure will fall 8.2% for the quarter after a 1.6% fall in Q1.

Such drastic falls would put more pressure on the government to fill the hole. The government seems more than able to fund such large stimulus measures after another record breaking debt raising yesterday.

The Australian Office of Financial Management issued $21 bn. for a 2031 maturity. This adds to the large issuance already completed this financial year and shows there is a strong appetite for Australian government debt.

Josh Stewart

Client Relationship Manager