June 7 (Bloomberg) -- Australia’s building industry shrank for a 12th month in May as higher borrowing costs and consumer caution weighed on construction, a private survey showed.
The construction performance index was 39.6 from 37.9 in April, marking a year since it was last in an expansion, according to a survey by the Australian Industry Group and the Housing Industry Association released in Sydney today. A reading below 50 indicates the industry is contracting.
Reserve Bank of Australia Governor Glenn Stevens will hold the benchmark interest rate at 4.75 percent today, according to a Bloomberg News survey of economists, after boosting borrowing costs seven times from October 2009 to November. A report last week showed the household savings ratio rose to 11.5 percent in the first quarter from 9.7 percent in the previous period, the highest level since 2009 as consumers exhibit greater restraint.
“Private-sector demand, held back by higher interest rates and a cautionary sentiment, has not grown with sufficient strength to counter the dampening impacts of lower incentives for first home buyers and direct public investment in schools and community housing,” Peter Burn, director of public policy at the Australian Industry Group, said in a statement. “Overall, the construction sector remains highly vulnerable to any further interest-rate rises.”
The government has been winding back fiscal stimulus measures, and Treasurer Wayne Swan said last month it will end 23 years of spending growth to help ease inflation pressure and support the return to a budget surplus.
A gauge of housing advanced 1.4 points to 39.8 and new orders rose 0.7 point to 38.5, the report showed. Engineering work climbed 2.7 points to 42.3 while commercial work fell 3.2 points to 35.2, it showed. The measure of apartment building slumped 5.8 points to 25.3 in May.
“Weakness is being exhibited in both house building and commercial construction while the apartment sub-sector has recorded 13 months in a row in negative territory,” Burn said.
--Editors: Brendan Murray, Edward Johnson
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