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Construction up, despite spending cuts

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AAP

2012-11-28

Government spending cuts are having a negative impact on the construction sector, official figures show.

Total construction work done rose 1.7 per cent in the September quarter, figures released by the Australian Bureau of Statistics on Thursday show.

That was despite a 7.3 per cent fall in public sector construction work.

JP Morgan economist Tom Kennedy said the figures showed government spending cuts were weighing on the construction sector.

"It looks like the weakness has once again been on the public side of things and that is not really surprising given the fiscal objectives of both federal and state governments," he said.

He said the bright spot in the figures was a 7.8 per cent rise in private sector engineering, which includes work done in the mining sector.

"Obviously, it's not a fantastic result (overall) but I guess the silver lining is that the weakness is on the public rather than private side."

HSBC chief economist Paul Bloxham said the numbers showed that mining activity was still going strong.

"It met expectations and, if you look at the components, they look broadly as you would expect," he said.

"We're still seeing strong growth in engineering, so it looks like the mining boom is continuing.

"At the same time, the public construction numbers look very weak, so the fiscal consolidation that's happening is having a negative impact on that."

He added that a rate decision by the Reserve Bank of Australia (RBA) next week could be a close one.

"I think they could afford to cut interest rates further ahead of Christmas," Mr Bloxham said.

"But I think it will go down to the wire. We still have more information to come, with capex (capital expenditure) due tomorrow, retail sales data on Monday."