December quarter sees rise in construction activity

Construction activity edged ahead in the December quarter and may indicate that the country managed to avoid falling into recession in the second half of 2010.

Figures from Statistics New Zealand (SNZ) today show the seasonally adjusted volume of building activity rose 1.1 percent in the three months to the end of December, compared to the quarter before.

The overall volume increase included a 10.6 percent rise in non-residential building work and a 7.1 percent fall in residential work.

ASB economist Chris Tennent-Brown said that despite the lift in the latest quarter, the volume of building work done in the three months was still down 23 percent from the December 2007 peak in seasonally adjusted terms.

The improvement in non-residential construction in the past year had largely been driven by public project construction offsetting weakness in private projects.

During 2010, the largest increase in building work values came from the construction of hospitals and nursing homes. Large declines were recorded for the value of commercial, factory and industrial buildings, Mr Tennent-Brown said.

With the second Canterbury earthquake, last month, the construction outlook for the years ahead had dramatically changed. The increased scale of destruction, meant repair work was unlikely to get under way in a meaningful sense until later this year.

The rise in building activity in the latest quarter was better than ASB had been expecting, and lifted its forecast for December quarter gross domestic product (GDP) from a small contraction to a flat outturn, Mr Tennent-Brown said.

After GDP declined 0.2 percent in the September quarter, a further fall in the December quarter would meet a technical description for recession of two consecutive quarters of decline.

ANZ said that at the margin, the rise in total building work put in place in the December quarter removed some of the downside risk that the economy was in technical recession in the second half of 2010.

But that was "scant consolation" with the February 22 Christchurch earthquake likely to shave up to 1.5 percent off GDP during 2011.

"Prior to the February earthquake we had envisaged a strong rebound in the second half of 2011, assisted in part from reconstruction work from the September 2010 quake. This work has effectively been pushed back by at least six months," ANZ said.

The estimated $10 billion to $15 billion bill from the February earthquake suggested there would be soon be strong demand for construction sector resources.

"Given the scale of the reconstruction work, we are talking about a multi-year construction boom that will quickly stretch capacity within the construction sector and will result in the reprioritisation of construction work from other sectors and regions. Tough choices lie ahead."