There appears to be no end in sight for the grinding slowdown in the Australian construction industry, with another sharp fall in the value of work done in the first three months of the year.

Key points: The value of residential construction fell by 2.5 per cent in the first three months of year, the third consecutive quarter of falls

The value of residential construction fell by 2.5 per cent in the first three months of year, the third consecutive quarter of falls Slowing residential construction, coupled with likely interest rate cuts and easing loan restrictions may put a floor under house prices

Slowing residential construction, coupled with likely interest rate cuts and easing loan restrictions may put a floor under house prices Weak construction data expected to drag down first quarter GDP growth

In seasonally adjusted terms, the value of work completed fell by 1.9 per cent to be 6 per cent down on a year ago.

Unsurprisingly, residential construction was hit hard with the value of work done down 2.5 per cent over the quarter.

Residential has now fallen for three consecutive quarters to be down more than 3 per cent on a year ago.

Importantly, residential construction feeds directly into GDP calculations pointing to another weak quarter of economic growth when the National Accounts are released by the ABS next month.

The slowdown in big engineering works was even more pronounced, with the value of work down almost 4 per cent for the quarter, to be more than 12 per cent lower over the year.

A jump in the value of work done in the small non-residential sector, for projects such as offices and warehouses, was not enough to offset the overall weakness.

Big projects slowing

IFM Investors chief economist Alex Joiner described the figures as "very weak".

"Seems like the period ahead will be defined by the decline in the residential sector," Dr Joiner said.

"Interestingly both public and private sector engineering work was weaker in the quarter, demonstrating the infrastructure narrative is choppy in terms of its contribution to GDP growth."

The weakness in engineering work was evident in both private sector spending over the quarter and public sector work, which was down 2.2 per cent.

Employment website Indeed's economist Callam Pickering said public sector construction is now in free-fall, down more than 9 per cent for the year.

"Not what the economy needs right now," Mr Pickering said.

House price collapse may slow

However, Mr Pickering noted the declining activity in house and apartment construction may put a floor under tumbling property prices.

"Combined with reduced macroprudential policies from APRA, this may help to stabilise property prices in Sydney and Melbourne," he said.

Citi economist Josh Williamson said the data is likely to drag down first quarter GDP.

"The 2.4 per cent decline in private residential work down will shave 0.15 percentage points from GDP growth in Q1 … [while] the decline in public construction also presents some downside risk," Mr Williamson said.

However, Citi has upgraded its house price forecasts in the light of likely rate cuts from the RBA starting next month and APRA's easing of lending rules for the banks.

"According to our bank analysts this will result in a 10 per cent increase in borrowing capacity, make credit available to owner-occupier borrowers that have previously been denied loans but also benefit investors," Mr Williamson said.

"Our peak to trough year-on-year nominal house price change forecast has therefore been revised from -10 per cent to -7.5 per cent by June 2019.

"Furthermore, we now expect year-on-year house prices to show growth of 3 per cent by December 2020 whereas previously we had no increase."

More jobs to go

Indeed's Mr Pickering said the data, along with job ads and placement opportunities, pointed to further job losses across the construction sector.

"Construction was the second worst performing sector last year, behind manufacturing, with around 50,000 jobs lost," he observed.

"These figures are consistent with more jobs to go and are consistent with Indeed's [jobs] data base that construction employment will continue to fall."