Activity in Australia's construction industry remained relatively subdued in December last year, according to the the latest Australian Industry Group Australian Performance of Construction Index (PCI). The overall construction index rose 1.6 points in December to 43.8, but remained below the 50.0 threshold between growth and contraction.

Stronger demand from the resources sector helped the engineering construction sub-sector expand for the first time in six months. It was the only major sub-sector to record growth in December with new orders and deliveries across construction falling at a faster rate. Poor weather conditions and diminishing work from school building projects stifled activity.

Australian Industry Group Director Public Policy, Dr Peter Burn, said: "Despite a lift in engineering construction and reduced declines in activity in the residential and commercial construction sub-sectors, overall the construction industry was weaker to end a disappointing second half of 2010.

"The slower pace of decline in December is dampened by reports that new orders continue to fall in all four sub-sectors. Businesses and home buyers continue to refrain from committing to new projects with expectations of further rises in interest rates a likely factor.

"The sluggish performance over the second half of the year would have been considerably worse in the absence of the continuing public sector stimulus of activity in the industry. The industry is looking for a lift in private sector projects in the New Year to offset the ongoing withdrawal of that stimulus," Dr Burn said.

Housing Industry Association Senior Economist, Andrew Harvey, said: "Although the pace of decline has moderated, house building activity fell for a seventh consecutive month. With further falls in new orders for houses and apartments, this month's Australian PCI report is one more piece of evidence that we are heading into a much weaker period for residential building.

"The wait for affordable land is one of the primary obstacles to new house building in greenfield areas, while the apartment market continues to struggle under tough credit conditions. A sustained period of contraction in both of these market segments will continue to lock many prospective homebuyers into the rental market for years to come," Mr Harvey said.