Australia's economy managed to beat market expectations during the last quarter of 2019 despite the continued softening of the residential building segment, according to the Australian Bureau of Statistics (ABS).
Australia's GDP growth hit 0.5% over the last quarter of 2019, outpacing the market expectation of 0.3% to 0.4%. The annual gain of 2.2% also beat the market forecast of 2%.
“The economy has continued to grow and picked up through the year. However, the rate of growth remains below the long-run average,” ABS chief economist Bruce Hockman said.
However, the residential construction segment continued to be a major drag. New construction activity fell by 4.1% over the quarter while renovations declined by 2.2%.
Dwelling investment also decreased over the quarter by 3.4%, clocking a sixth consecutive decline.
The slowdown in the residential segment detracted 0.2 percentage points from the overall GDP growth, said Diwa Hopkins, senior economist at the Housing Industry Association (HIA).
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Hopkins said the three rate cuts by the Reserve Bank of Australia and the easing of credit rules provided support to the wider domestic economy.
"The effect of these moves had not yet filtered through to the residential construction sector, which represented a drag on the economy in the December 2019 quarter," she said.
A recent analysis by Matthew Hassan, an economist at Westpac, said the growth in dwelling approvals does not appear to be responding as strongly as expected to the rate cuts.
Shane Garrett, chief economist at Master Builders Australia, said the residential building segment is amongst the major sections of the economy that Australia needs to watch out for. Garrett said recent events, such as the bushfires and the COVID-19 outbreak, could potentially impact not just the residential segment but the overall economy.
"Given these challenges, it is imperative that everything is done to boost demand and confidence across our economy including support for building and construction businesses affected by disruption to building product supply chains and the broader economic impact of the coronavirus," he said.
Hopkins shared the same sentiments, adding that the December 2019 economic growth figures predate the onset of trade and travel restrictions due to the coronavirus outbreak.
"The restrictions represent a risk to the level of home building –through their effects on supply chains and also demand for new housing," Hopkins said.
An earlier projection by the HIA pointed to a modest upturn in construction this year.
"Despite this whopping contraction, we believe that the cycle had just about run its course and the overall housing market reached a turning point at the end of 2019, buoyed by interest-rate cuts and house price growth," said Tim Reardon, chief economist at HIA.
However, it is unlikely for the next upturn in home-building activity to reach the highs recorded during the boom years from 2014 to 2018.