The latest release of Australia’s Construction Work Done for Q3 2025, sourced from the Sigmanomics database, reveals a contraction of 0.70% quarter-on-quarter. This contrasts with the previous quarter’s robust 2.90% expansion and falls short of the 0.40% market estimate. The data covers all states and territories, reflecting a nationwide slowdown in construction activity over the three months ending September 2025.

Drivers this month

• Residential building work declined by 1.20%, pressured by higher mortgage rates and subdued buyer demand.
• Non-residential construction remained flat, reflecting cautious corporate investment amid global uncertainties.
• Infrastructure projects grew modestly by 0.50%, supported by ongoing government spending.

Policy pulse

The contraction aligns with the Reserve Bank of Australia’s (RBA) recent monetary tightening cycle, which has pushed the cash rate to 4.10%, the highest since 2012. Elevated financing costs have dampened new project commencements, particularly in the housing sector, which is sensitive to interest rate changes.

Market lens

Following the release, the Australian dollar (AUD/USD) weakened by 0.30%, while 2-year government bond yields rose 5 basis points, reflecting increased expectations of slower growth. The S&P/ASX 200 construction and materials sub-index fell 1.10% in early trading.

Construction Work Done is a critical macroeconomic indicator, representing the value of work completed by the construction sector. It directly impacts GDP growth, employment, and investment trends. The 0.70% QoQ contraction in Q3 2025 marks a significant reversal from the 2.90% expansion in Q2 and is the first decline since Q1 2024.

Historical comparisons

• The current contraction is the largest quarterly drop since Q3 2023 (-1.10%).
• Over the past 12 months, the average quarterly growth rate was 1.30%, indicating a cooling trend.
• Compared to the 5-year average quarterly growth of 1.80%, the sector is underperforming notably.

Monetary policy & financial conditions

The RBA’s tightening cycle, initiated in mid-2024, has increased borrowing costs for developers and households. Mortgage rates have risen by 150 basis points over the past year, reducing affordability and dampening demand for new residential projects. Commercial lending standards have also tightened, limiting corporate construction investment.

Fiscal policy & government budget

Federal and state governments continue to prioritize infrastructure spending, with a 3.50% increase in budget allocations for transport and utilities projects in FY2025-26. However, fiscal stimulus has yet to fully offset private sector weakness in construction.

Month-on-month data from the Sigmanomics database shows that the residential segment’s slowdown is consistent with falling building approvals and weaker consumer confidence. Non-residential construction’s flat performance reflects cautious corporate capital expenditure amid geopolitical uncertainties.

Market lens

Immediate reaction: AUD/USD dipped 0.30%, and 2-year bond yields rose 5 bps post-release, reflecting growth concerns. The S&P/ASX 200 construction index declined 1.10%, signaling investor caution.

Looking ahead, the construction sector faces a mixed outlook shaped by monetary policy, fiscal support, and external risks. The following scenarios outline potential trajectories for the next two quarters:

Bullish scenario (25% probability)

• Monetary policy stabilizes as inflation eases, leading to a pause in rate hikes.
• Government infrastructure spending accelerates, boosting public construction.
• Residential demand rebounds modestly due to improved affordability and consumer sentiment.
• Construction Work Done grows by 1.50% QoQ in Q4 2025 and Q1 2026.

Base scenario (50% probability)

• RBA maintains current rates, with gradual easing expected in mid-2026.
• Private sector construction remains subdued, offset partially by steady public projects.
• Construction Work Done hovers around flat to slight growth (0% to 0.50% QoQ) over the next two quarters.

Bearish scenario (25% probability)

• Global economic slowdown and geopolitical tensions worsen, dampening investment.
• Further monetary tightening occurs due to persistent inflationary pressures.
• Residential and commercial construction contract further, dragging overall activity down by 1.00% QoQ or more.

Risks to the outlook include potential fiscal stimulus acceleration, commodity price shocks, and shifts in global trade dynamics. The sector’s sensitivity to interest rates and government policy will remain paramount.

The Q3 2025 contraction in Australia’s Construction Work Done signals a cooling phase after a period of robust growth. Monetary tightening and higher financing costs have weighed heavily on residential construction, while infrastructure spending provides some offset. The sector’s trajectory will depend on the interplay of monetary policy, fiscal support, and external shocks.

Investors and policymakers should monitor upcoming building approvals, lending conditions, and government budget updates closely. The construction sector remains a bellwether for broader economic health, employment, and investment trends in Australia.

Incorporating data from the Sigmanomics database, this report underscores the importance of balanced risk assessment and scenario planning amid evolving macroeconomic conditions.

For market participants, the following tradable symbols are relevant due to their correlation or impact relationship with construction activity:

• BHP – Major mining stock sensitive to infrastructure demand and commodity prices.
• AUDUSD – Currency pair reflecting Australian economic sentiment and interest rate differentials.
• CSR – Building materials company directly linked to residential and commercial construction.
• BTCUSD – Crypto asset often viewed as a risk sentiment barometer impacting investment flows.
• EURAUD – Cross currency reflecting relative economic strength between Australia and Eurozone.