In NSW, residential activity fell by 10 per cent over the past year to its lowest level since late 2015. Overall building construction was down by 5.7 per cent in the quarter while there were falls across all other parts of the sector, including in engineering construction. The infrastructure-led category dropped by another 1.1 per cent to its lowest levels since the global financial crisis. Master Builders Australia chief economist Shane Garrett said despite being on the cusp of an infrastructure boom, engineering construction activity had not been this weak since the GFC. "It’s a clear sign that governments are not moving fast enough to advance infrastructure commitments to the construction phase," he said. Economists believe the latest figures will cut about 0.4 percentage points from next week's national accounts with JPMorgan now forecasting the economy probably grew by just 0.3 per cent through the June quarter.

That would take growth down to just 1.2 per cent through the past 12 months, the worst annual result since the end of the 1990-91 recession and well short of the 2.25 per cent forecast by Treasurer Josh Frydenberg in his April budget. Mr Frydenberg earlier this week said the government was looking at what projects could be brought forward after being encouraged by Reserve Bank of Australia governor Philip Lowe to use low borrowing rates to sink more money into the economy. Separate figures from the HIA showed the number of new homes sold across the country fell by 7.2 per cent in July despite the RBA's back-to-back interest rate cuts. Sales lifted in May in the immediate wake of the federal election but that short-term boost has not been maintained. Loading Replay Replay video Play video Play video

In NSW, there were 781 new houses sold in July - down 20 per cent since May. It was the worst July since records started to be collated in 1990-91. It was worse in Victoria, with sales down by almost 26 per cent since May. The 1622 sales in July was the worst for that month in seven years. Lend Lease chief executive Steve McCann predicted the residential market had hit a floor. "We believe the broader Australian residential market is near the bottom from both a volume and price perspective and we've been preparing our portfolio for the next cycle," he said. Westpac senior economist Andrew Hanlan said with the construction sector accounting for 13 per cent of the economy, the sharp drop in activity through the June quarter would have a material impact on the national accounts.

"The housing downturn still has further to go and will weigh on conditions throughout 2019 and into 2020," he said. But S&P Global chief economist Paul Gruenwald, in Australia on a regional speaking tour, said the economy's overall fundamentals remained strong. He told The Sydney Morning Herald and The Age that while there had been a slowdown in the domestic economy through the first half of the year, the outlook was much brighter. Continued strong demand for Australian commodities coupled with the RBA's recent rate cuts would underpin the economy, he said. "Australia is still looking pretty healthy and longer term looks pretty good."

Financial markets and economists expect the RBA to use its November meeting to cut official interest rates to a new record low of 0.75 per cent.