Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

Construction work rebounded in the first three months of the year, buoyed by residential building activity striking a six-year high.

Federal and state government initiatives, alongside ultra-low interest rates lifted residential building by 5.1 per cent in the March quarter to $18.96 billion, new figures released on Wednesday show.

BIS Oxford Economics senior economist Nicholas Fearnley expects the federal government’s now-concluded HomeBuilder program will continue to provide a major boost to detached house construction and renovation work over the coming year.

“With both labour and material capacity constraints in play, project delays and cost overruns can be expected,” he said.

“The considerable backlog of work that has developed should sustain an elevated level of activity for home builders deep into 2022.”

Housing Industry Association economist Angela Lillicrap said while HomeBuilder successfully drove this surge in activity, other factors are also at play.

“Record low interest rates and a change in preferences towards detached housing are also important drivers,” Ms Lillicrap said.

The Australian Bureau of Statistics said total construction work in the March quarter grew at a slightly faster pace than economists had expected, rising 2.4 per cent to $51.97 billion, although was still down 1.1 per cent on the year.

Non-residential work fell 1.6 per cent to $11.23 billion and now stands 10.4 per cent down over the year, while engineering activity rose 2.2 per cent to $21.78 billion.

National Australia Bank economist Tapas Strickland said the private sector parts of the report will feed into the March quarter economic growth result contained in the June 2 national accounts.

NAB expects construction will add 0.2-0.3 percentage points to growth, which at this stage will be one per cent for the quarter.

This will follow two consecutive quarters of growth of more than three per cent – an event that has not occurred in at least 60 years – as the economy enjoyed a rapid recovery from recession.

Economists will fine-tune their March quarter growth forecasts over the coming week with further quarterly reports due.

Data on capital expenditure and forward business investment plans are released on Thursday.

International trade, business profits and inventories, and government spending for the March quarter are issued on Tuesday.

Looking further forward, the latest Westpac-Melbourne Institute leading index for April suggests the strong economic recovery looks set to extend over 2021 and into 2022.

The index, which indicates the likely pace of economic activity growth three to nine months into the future, continues to point to above-trend annual growth at around 2.8 per cent.

“The signal is consistent with Westpac’s growth forecasts for the Australian economy,” Westpac senior economist Matthew Hassan said.

The bank expects a very strong growth rate of 4.5 per cent in 2021 and then moderating marginally to a four per cent pace in the first half of 2022 even as the impact from the end of last year’s COVID-19 lockdowns unwinds.

“With initial reopening rebounds now largely complete, other drivers are set to take over with upbeat, cashed-up households and booming housing markets setting what will still be a strong pace for growth,” Mr Hassan said.

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