CANBERRA, AAP – Australia’s construction industry suffered a slump over December and January due to the impact of the Omicron variant, continuing the sector’s volatile run over the past six months.

The Australian Industry Group/Housing Industry Association performance of construction index dropped 11.1 points to 45.9 over December and January, cutting short a recovery in November.

It was the weakest index result since August last year with a reading below 50 indicating the sector is in contraction.

“This latest downturn was driven by disruptions to labour supply, material supplies and business and household confidence associated with the rapid spread of the Omicron strain,” Ai Group chief policy advisor Peter Burn said.

“Builders and constructors are hoping the reductions in COVID-19 infections evident over the past couple of weeks will ease some of the extra constraints evident over the past couple of months but they, like everyone else, are geared for further uncertainty and volatility.”

HIA economist Tom Devitt expects ongoing demand as part of the shift in homebuyer preferences towards more space and greater amenity will continue to keep builders busy into 2023.

However, Reserve Bank of Australia governor Philip Lowe has warned that a rise in the cash rate later this year is “plausible”.

“The RBA’s first cash rate increase is expected to officially mark the end of the current boom,” Mr Devitt said.

Dr Lowe told the National Press Club on Wednesday the economy is closer to full employment and achieving the inflation target than he had earlier anticipated.

But he wants wages growth to accelerate from its current low level of 2.2 per cent to ensure inflation holds sustainably within the two to three per cent target.

The RBA, which will release its full suite of forecasts in Friday’s quarterly statement on monetary policy, does not expect wages to be growing at over three per cent until 2023.

“To their credit, the Reserve Bank and the governor have been saying for a long time now – even before the pandemic – that this is one of the defining challenges that we have,” shadow treasurer Jim Chalmers told ABC radio.

“We’ve had this stagnant wages growth, the reason we’ve got it is because job insecurity is undermining the foundations of that wages growth.”

Meanwhile, the Australian Bureau of Statistics will release building approvals figures for December on Thursday.

Economists’ forecasts point to a one per cent decline in the month, resuming the downward trend that has been evident since government stimulus began to be unwound earlier last year, and after a 3.6 per cent increase in November.

The ABS will also release international trade numbers for December, where forecasts are centring on a $9.9 billion surplus, a modest improvement on the $9.4 billion surplus record in November.

The surplus has been narrowing since the $13.7 billion posted in July as a result of the iron ore price being well off its peak and imports rising as the economy recovers from COVID-19 lockdowns.