Construction sector keeps economy afloat as GDP growth slows
Australia’s slowing economy has been propped up by builders and construction activity, according to an industry peak body.
New figures showed that Australia’s gross domestic product (GDP) growth has slowed down over the March quarter, rising by 0.2 per cent, marking the weakest increase in the latest 12 months.
Australian Bureau of Statistics head of national accounts, Katherine Keenan, said Australia’s economic growth was soft over the first quarter of 2025 and recorded a 1.3 per cent rise over the last 12 months.
“Public spending recorded the largest detraction from growth since the September quarter 2017,” Keenan said.
“Extreme weather events reduced domestic final demand and exports. Weather impacts were particularly evident in mining, tourism, and shipping.”
Master Builders Australia chief economist, Shane Garrett, said while the overall figures were weak, the construction industry, residential building, outperformed with a 2.6 per cent growth during the quarter.
“Demand for home renovations was particularly strong.”
“Non-residential building delivered a 2.1 per cent uplift during the quarter, while engineering construction gained 1.5 per cent,” Garrett said.
Additionally, residential property prices increased by 0.5 per cent in May, driven by a mix of lower interest rates and a lack of new housing supply, with Perth, Brisbane, Darwin, and regional areas seeing particularly strong quarterly growth.
Garrett noted that construction activity’s stronger performance aligned with the Reserve Bank of Australia’s interest rate cut, giving the industry a welcome confidence boost.
“But momentum won’t last without targeted reform to lift productivity.”
Despite recent gains in the construction sector, Garrett said that the industry still faces challenges in building new dwellings faster.
“We are still building homes at a far slower rate than what’s needed to hit the Accord target.”
“We can only do this by rapidly addressing our industry’s severe productivity problems and allowing our industry workforce to expand,” Garrett said.
Bendigo Bank’s chief economist, David Robertson, said the latest figures indicate the economy still requires support and justifies maintaining lower interest rates.
“As the RBA puts global factors such as trade wars firmly in its sights, we can expect to see two more cash rate cuts this year – a drop of 25 basis points per quarter,” Robertson said.
“There is also potential for one more cut next year, which would take the cash rate to a neutral 3.1 per cent,” he said.
He added that if the US had implemented the steep tariffs proposed in early April, the Reserve Bank would likely have delivered a larger 0.5 per cent interest rate cut in May.
However, with most countries granting deferrals and some easing tensions with China, the RBA opted for a standard 0.25 per cent cut, preserving more policy flexibility for future uncertainty.
“While the economy is still growing, once again our productivity rate failed to lift, down 1 per cent over the year, giving the returned ALP government a timely reminder of the imperative of addressing this longstanding issue of underperforming productivity – the primary driver of lifting standards of living,” Robertson concluded.