Scott Morrison has foreshadowed a "very significant" hit to economic growth, as new figures showed residential home construction posted its weakest annual growth rate in almost two decades.
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However, the prime minister said Australia was making progress and would do even better once virus numbers declined further and borders reopened.
"We are making progress in bringing Australians back and getting the jobs back," he told parliament on Wednesday.
"It's important that we don't allow the country to go into some sort of economic retreat."
A large drop in residential home construction during the pandemic will weigh on economic growth across the nation.
Overall construction work completed during the quarter fell by a modest 0.7 per cent in the quarter to $50.1 billion, smaller than economists had expected at a time when restrictions were imposed on the nation to try and contain the virus.
But it disguised a 5.5 per cent tumble in residential building construction to be 12.1 per cent down over the year, Australian Bureau of Statistics data showed on Wednesday.
The data feeds into next week's June quarter national accounts which are expected to confirm the economy is suffering the first recession in nearly 30 years with a substantial contraction, possibly by up to seven per cent.
Housing Industry Association senior economist Geordan Murray said the decline in residential building work would compound that contraction.
Even then, he said the decline in home building activity could only partially be attributed to the COVID-19 disruption because a majority of sites were able to continue operating implementing on-site social distancing measures.
Labor's housing spokesman Jason Clare said the collapse in construction followed industry warnings of a "bloodbath" in the sector.
"The really bad news is that the worst is yet to come," Mr Clare said in a statement."
Non-residential building contracts showed a smaller 1.5 per cent decline in the quarter, while engineering bucked the trend, rising by a solid 3.8 per cent.
JP Morgan economist Tom Kennedy said the surprise strength in engineering activity created some modest upside risk to his forecast for an overall 7.2 per cent economic contraction in the quarter.
The construction report kicks off a series of economic reports over the next few days that will give a better idea of how deep the recession has been.
The economy contracted by 0.3 per cent in the March quarter and the widely expected second consecutive negative quarter will constitute a technical recession.
The June quarter national accounts are due on September 2.
Business investment data will be released on Thursday.
Economists expect June quarter private business capital expenditure tumbled a hefty 7.9 per cent, extending the 1.6 per cent fall in the first three months of the year.
Australian Associated Press
