Australia’s economic momentum showed fresh signs of cooling after two key data releases painted a softer picture for the June quarter and July. The Australian Bureau of Statistics reported that total construction work done fell 2.1% in the second quarter of 2025, badly missing market forecasts for a 0.5% increase. This was the first quarterly decline in construction activity in more than a year, with the value of work dropping from AUD 64.6 billion to AUD 63.2 billion.
The contraction was broad-based. Residential construction fell 3.1%, led by a sharp drop in new home building and alterations, while non-residential and engineering construction also slowed. The result raises concerns because construction accounts for around 7% of Australia’s economic output and employs more than 1.2 million people. With the government targeting 1.2 million new homes over five years from July 2024, the residential weakness threatens to worsen an existing housing supply crunch.
At the same time, Westpac’s Leading Index, a composite gauge of future activity, was unchanged at 0% in July, down slightly from a revised 0.04% in June. Westpac chief economist Bill Evans said the index remains consistent with the economy growing around potential, but added that the slight easing in momentum warrants close attention in the coming months.
Both releases feed into the Reserve Bank of Australia’s policy calculus. The RBA has held its cash rate at 4.35% since November 2024. While a flat leading index alone is unlikely to trigger immediate action, the weak construction headline and ongoing housing supply pressures may strengthen expectations for a rate cut later this year. Economists note that elevated interest rates, high material costs, and labor shortages continue to constrain construction viability and timelines.
For financial markets, the data reinforces a picture of an Australian economy growing at or slightly below trend, with downside risks tilted to the domestic outlook. The next ABS construction work done release, covering the September quarter, is expected in late November 2025.
