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Infrastructure and mining lead Australia’s investment recovery
Business investment is the most sensitive part of the economy. It can weaken more than the economy during a downturn as confidence falls and businesses stockpile cash rather than invest. Equally, it can turbocharge an economic recovery.
Deloitte Access Economics’ latest Investment Monitor report shows, like many other economic indicators at present, there are also positive signs on the investment front.
Investment Monitor lead author Stephen Smith notes: “the outlook has improved in recent months. Local COVID numbers remain small, the vaccine rollout has begun, business confidence is near decade highs, and the Reserve Bank of Australia has promised to keep interest rates at current lows for at least the next three years.”
“Even better, state governments are amid a surge of investment spending, some of which directly requires – or indirectly fires up – some private investment.
“That suggests that business investment will recover sooner rather than later from its current slowdown.”
Overall, private business investment is forecast to record a fall in 2020-21 before accelerating at double-digit rates in both 2021-22 and 2022-23 – adding almost three percentage points to economic growth over this period. Public investment is set to grow by 20% in 2020-21 before moderating thereafter.
Infrastructure investment is expected to drive activity over the coming years. There are currently more than $180 billion worth of public infrastructure projects underway across Australia, a 40% increase from the trough seen six years ago. And further gains are expected in coming years with most governments announcing increases to infrastructure investment pipelines in recent budgets.
Chart: Value of infrastructure investment projects under construction
Source: Deloitte Access Economics Investment Monitor March 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.
The record pipeline of transport infrastructure investment has raised questions around the capacity of the construction industry to deliver projects on-time and on-budget.
International border restrictions have exacerbated the issue of skills shortages. It is now more difficult and expensive to source skills form overseas. And many specialised skills, required on the largest engineering construction projects, are imported from overseas. Major contractors are also increasingly reluctant to take on the risk of building large projects. This is a concern for the large pipeline of multi-billion road and rail projects.
Questions about both the environment for business investment and access to skills (the capacity of Australian organisations to obtain the skilled labour to deliver that investment) will be front and centre when the Federal budget is released tomorrow night.
Be sure to tune in to Deloitte’s comprehensive coverage of all Budget announcements via Federal Budget 2021-22.
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.