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SYDNEY, Feb 7 AAP

February 07 2013, 10:08AM

Australia's construction sector contracted further in January, marking the industry's 32nd consecutive month in decline.

The Australian Industry Group (Ai Group) and Housing Industry Association's (HIA) performance of construction index (PCI) fell 2.6 points to an index level of 36.2 in January.

An index level below 50 indicates the sector contracted during the month.

Ai Group director of public policy Peter Burn said weakness in residential construction meant the sector was likely to remain in a slump.

"The impacts are being felt not only by the businesses and employees directly involved in the industry but also across the broader economy as industries in both the services and manufacturing sectors feel the pinch for the prolonged sluggishness in house, apartment and commercial building," he said

He said the latest index shows recent interest rate cuts had not yet provided a boost for the sector.

The Reserve Bank of Australia (RBA) cut the cash rate a total of 1.75 percentage points between November 2011 and December 2012, bringing it to its current level of 3.0 per cent.

HIA chief economist Harley Dale said the PCI result went against the RBA's hopes that the sector would pick up in 2013, to help compensate for an expected decline in mining investment.

"A contraction at a faster rate for the headline index and a number of sub-indices at the beginning of 2013 is not the new entry required to suggest we are on the cusp of a recovery in non-resource construction investment," he said.

All sub-sectors covered by the PCI contracted in January, with apartment building down 1.2 points to 38.9 and commercial construction down 6.1 points to 40.1. House building's contraction had slowed, with its index up 1.4 points to 36.1.