Australia's construction industry continued to contract in February, but at a more rapid rate than the previous month as weak market demand and confidence led to further cutbacks in new project work.

The latest Australian Industry Group - Housing Industry Association Australian Performance of Construction Index results - the Australian PCI - registered just 29.5 in February, down by- 4.6 points and remaining well below the 50.0 point level separating expansion from contraction for the twelfth consecutive month.

Commenting on the latest results, Australian Industry Group (Ai Group) associate director, economics and research, Tony Pensabene, said: "There was no let up in February for struggling construction firms as the relentless pressures of tight credit conditions and low market confidence continued to hit demand for building projects.

"This was evident in the on-going deterioration in activity across all major construction sectors, as firms faced intensifying competition for contracts and a further narrowing of business opportunities. There were also further reports of project delays and deferrals, particularly in the commercial sector which posted the worst activity level of all sectors.

"Nevertheless, lower interest rates and increases to the first home owners grant appear to have contributed to an easing in the rate of new order contraction in the house building sector for a third straight month. " added Mr Pensabene.

Housing Industry Association chief economist, Harley Dale, explained that, "Despite tentative signs the drop in demand for housing is easing, there is clearly a need for an increase in trade-up buyer and investor activity before an aggregate new home building recovery will emerge.

"The urgent implementation of the Federal Government's funding of public and community housing projects, with the multiplying effect this stimulus will have in unlocking private sector projects, can prove the catalyst for a broad-based recovery in residential construction."

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