MNI ANALYSIS: Australia Q2 Constr. Spike Small Upside GDP Risk

--Record Rise in Q2 Engineering Construction Said To Be Due to New LNG Platform

By Sophia Rodrigues

     SYDNEY (MNI)  - The sharp jump in engineering construction work in the

second quarter doesn't pose a significant upside risk to GDP though some

positive impact is a possibility as the rise in investment may exceed the value

of imports during the quarter.

     Data published by the Australian Bureau of Statistics earlier Wednesday

showed construction work done in Q2 posted the largest gain on record, up 9.3%

q/q, due to large 21.5% jump in engineering work.

     Officials at the Australian Bureau of Statistics confirmed to Market News

International that the sharp jump in engineering work was due to a large

imported item that was constructed overseas.

     Because of a confidentiality agreement with the company, ABS officials

could not provide specific detail of the import. 

     But they did indicate that more such imports are likely as resources

projects near completion.

     Westpac economist Andrew Hanlan said in an analysis of the data that the

engineering figure was likely inflated "by the importation of Prelude, a

floating LNG platform" which set sail for Western Australia from a South Korean

shipyard on June 28.

     According to Hanlan, the jump in private infrastructure work in the

quarter, up 32.2% or A$4.0 billion, was fully accounted for by construction work

in Western Australia, which leapt 55.6% or A$4.1 billion.

     One official at ABS said the import value of the item may have been

reflected in the international merchandise trade data over several months as the

company made prepayments, thus reflecting progressive change of ownership.

     This means some of the import value may have been incorporated in the

balance of payment data for the first quarter or even quarters prior to that.

     In the upcoming national accounts data for second quarter due next

Wednesday, the entire A$4.0 billion is expected to be captured as gross capital

formation. But it is possible the import value corresponding to that may be

lower than A$4.0 billion, which means the investment could make a contribution

to Q2 GDP.

     In a note published in 2012, ABS explained that imported structures, such

as LNG and iron ore processing equipment that have been fabricated overseas, are

included in the work done figures once the item is fixed in place.

     At the time of installation of a complete LNG module, Engineering

Construction Activity (ECA)records the total value of the imported structure

plus the installation costs, causing a spike in the ECA series. 

     The full value of domestic work, any final progress payments made in the

quarter, and the transport and installation costs to fix the structures into

place are included in GFCF (gross fixed capital formation), a component of the

expenditure measure of GDP and published in the Quarterly National Accounts, ABS

said.

     The recording of the import of the capital products is exactly the same in

the Balance of Payments and the National Accounts, and every effort is made to

ensure that the recording of the GFCF of the imported capital goods and the

corresponding import data are consistent, ABS said in the note.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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