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The Delta outbreak has halted, but not derailed, the recovery in investment. Deloitte Access Economics’ latest Investment Monitor report shows that businesses are adapting to a new pandemic normal in Australia. Experience from operating in a pandemic-stricken world in 2020, and the knowledge that Australia can recover from COVID impacts, has translated into less business pessimism in the face of 2021’s extensive lockdowns.
With restrictions now easing, the pace of the business investment recovery will depend on the level of certainty given to businesses. Ongoing state border restrictions, quarantine requirements for some travellers and the threat of snap-lockdowns still present a challenging backdrop for new investment.
At the same time as business investment is recovering, the focus of government spending is shifting from consumers to construction.
Investment Monitor shows that the value of publicly-funded infrastructure projects underway has increased from $131 billion in early 2015 to $202 billion in late 2021 – a gain of more than 50%. This compares to only $66 billion worth of non-infrastructure investment projects currently under construction.
And this disparity is forecast to widen, with the value of infrastructure projects underway set to rise from approximately $200 billion in 2021 to $285 billion in 2023. This would see the value of infrastructure investment surpass the peak in activity seen during the mining construction boom.
Chart: Value of infrastructure investment projects under construction
Source: Deloitte Access Economics Investment Monitor September 2021
Note: This chart uses project start and end dates, weighted by project status, to estimate the future value of projects under construction. Excludes any new projects that may enter the Investment Monitor database in the future.
Recent lockdowns have piled the pressure on an already stretched construction industry, which is suffering from a shortage of workers. While international borders are starting to reopen, it may still be some time off before that extends in widespread fashion to skilled permanent and temporary migrants – Australia’s general solution to short term skill shortages. And the high level of global infrastructure investment means that Australian contractors may not see immediate relief when international borders are reopened.
To make matters worse, there have also been construction materials shortages – with prices increasing for key inputs such as timber, rebar and steel. While some prices have abated more recently, others remain high, and there may be further price increases with supply chain issues set to extend into 2022.
A lack of workers and materials is a noxious cocktail for the construction industry. And with a record amount of infrastructure work set to be completed – not to mention a large pipeline of residential construction activity – it may be a stretch for contractors to deliver projects on-time and on-budget.
Deloitte Access Economics expects business investment to grow in 2021-22 before accelerating in 2022-23 – adding almost 1.5 percentage points to GDP over this period. Public investment is set to grow at double-digit rates in 2021-22, before slowing from 2022-23 as the amount of infrastructure investment work in the pipeline reaches a peak.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Sheraan is a manager in the Macroeconomic Policy and Forecasting team at Deloitte Access Economics. He works across Deloitte Access Economics key publications including Investment Monitor, which provides detailed data on major business and government investment projects in Australia.