1 February 2018: New engineering and commercial construction activity increased by 12% in the last year, reaching its highest level since the start of 2016.
Releasing the December quarter Deloitte Access Economics Investment Monitor, lead author and Deloitte Access Economics partner Stephen Smith said: “The improvement is partly due to the fact that the overhang of engineering work that commenced construction during the mining boom has finally passed. But it also reflects a greater willingness from businesses to once again spend money on expanding capacity and maintaining existing capacity.”
There is now a divergence in the outlook for the mining and non-mining sectors – despite more than 18 months of broadly better news on commodity prices and a lift in exploration expenditure, mining investment isn’t expected to increase substantially.
“Miners appear focused on controlling costs, and so recent strong profit results are more likely to be returned as dividends than laid out on new investments,” Smith said.
“Meanwhile, non-mining investment has turned a corner. Profits are up, interest rates remain low, measures of capacity utilisation are tightening, and the economy continues to strengthen. This combination of factors has supported a lift in business confidence and provides a solid backdrop for investment prospects.
Over the last five years, mining investment has fallen from around three fifths of all definite project activity (work underway or committed) to less than one third. During this period, transport investment has re-emerged as a key driver of definite work. In fact, the transport sector now makes up a greater share of definite project activity than the mining sector – the first time this has occurred since mid-2009.
“Modest gains in private business investment are expected over the next five years. Business investment is forecast to settle at around 13% of the economy, well above the 8% average prior to the mining boom,” Smith said.
Key Investment Monitor figures for the December quarter included:
- The value of projects in the database fell by $6.0 billion to $743.8 billion – a 0.8% increase from the previous quarter, and 5.0% below the level recorded a year earlier
- The value of definite projects (those under construction or committed) decreased by $3.1 billion, to the lowest level since March 2011, driven most recently by the end of construction at a number of large LNG projects in Queensland and Western Australia
- The value of planned projects (those under consideration or possible) fell slightly, by around $2.8 billion. Planned work has also fallen in the past year, down 2.2% from December 2016.
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.