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Infrastructure takes over

Investment Monitor September quarter 2018

31 October 2018:  Following the trough in business investment in late 2016, the debate has now turned to the timing and extent of the investment recovery.

But despite an initial flurry of gains in late 2016 through to mid-2017, business investment has remained relatively flat. And while businesses in the services sectors are spending more on expanding their productive capacity, that’s not true of miners or manufacturers.

Deloitte Access Economics partner and lead Investment Monitor author Stephen Smith said part of the problem is that the slowly deflating housing boom is taking momentum out of spending in certain sectors.

“The drought has limited investment from farmers and businesses involved in the agricultural supply chain along the east coast. And despite the improved backdrop for the mining sector, investment decisions are likely to be constrained by moderating Chinese demand as well as the higher global supply of key export commodities,” he said

“It’s also worth noting that the recent leadership change in Canberra is unlikely to provide a systemic issue for future business investment.

“Uncertainty can undoubtedly be corrosive, but the coming upswing in business investment is being supported by positives such as higher profits, low interest rates, robust economic growth and tightening capacity utilisation.

“Where this uncertainty does matter, however, is in the energy sector, and that industry is most definitely crying out for governments to quickly settle on a policy solution.”

Over the last few years there has been a notable increase in the value of infrastructure projects listed in the Investment Monitor database.1 A total of $324 billion worth of infrastructure projects are currently listed, an increase of almost $50 billion over the past two years.

Change in the value of infrastructure projects

Note: ‘Other’ includes harbours and telecommunications

“The largest driver of this gain has been road and rail investment, which now accounts for $205 billion worth of total project activity. Much of this work relates to government funded urban transport projects in the south-eastern states,” Smith said

“There has also been significant growth in private sector investment in renewable energy generation.  But uncertainty around energy policy settings means greater risk for investors. With this in mind it is possible that Australia ends up with less investment in new generation than is needed over the coming years.

“Following the end of the mining construction boom, spending on infrastructure has become the key driver of investment activity. In fact, investment in infrastructure now accounts for almost half of the total value of our Investment Monitor database, up from one third just two years ago.”

Key figures for the September quarter included:

  • The value of database projects fell by $6.4 billion to $706.0 billion – a 0.9% decrease from the previous quarter that places the value of the database at a nine-year low
  • The value of definite projects (those under construction or committed) decreased by $2.5 billion over the quarter. The completion of a number of large LNG projects in previous quarters has seen the value of definite project activity fall by $71.0 billion over the year, a 20% decrease
  • The value of planned projects (those under consideration or possible) decreased by $3.9 billion over the quarter. Despite this, planned work has grown by 6.9% over the past year.

1 Infrastructure includes projects in the transport (road, railways and harbours), utilities (electricity, gas and water) and communications sectors.

Deloitte Access Economics’ Investment Monitor is primarily a source of information for businesses and others about major engineering and commercial construction projects and their promoters. It is also a barometer of structural change in the Australian economy, and of the investment climate – now and in the future.

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