RBA interest rate cut to 1.75% in May boosts Australia’s construction sector which hit a 10-month high of 53.2 PCI

With $114 billion worth of construction projects underway, Australia was the fastest-growing construction market in the world at the start of 2012. However, by February, job cuts hit the market which thankfully had recovered, partly due to the Reserve Bank of Australia (RBA) rate cut in May 2016.

Two months after the RBA reduced the interest rate by 25 basis points to 1.75 from 2 percent, the construction sector moved from contraction in May to a 10-month record-high in June. ABC reports that the Australian Industry Group’s Performance of Construction Index (PCI) surged 6.5 points to 53.2.

Before the rate cut, the PCI was 46.7. An index above 50 indicates growth, spurred by the first increase in new orders in eight months. Current activity and employment also rose.

It is not just the PCI that expanded but all four subsectors. Engineering went up 7.5 points to 50.7, commercial grew back to 53.3, residential increased by a whopping13.7 points to 55.2 due to apartment activity and house building reached 62.1.

Peter Burn, Ai Group head of policy, notes that the residential subsectors of house and apartment buildings are the standout performers in current activity and new orders. He sees the two subsectors continuing their expansionary run over the near term.

Despite the improvement of the commercial and engineering subsectors in June, Burn says the two logged a decline in new orders. Harley Dale, chief economist of the Housing Industry Association, says that while the new residential remains the powerhouse of the Australian economy and there is some spark to the non-residential, “the breath of recovery is still proving elusive,” quotes the Sydney Morning Herald.

VIDEO: Commercial construction rising across Australia