Investment Monitor Edition Highlights

4 February 2019: While a number of factors support a view that business investment could lift more sharply than currently forecast over the next year or two, Deloitte Access Economics’ latest Investment Monitor is predicting slower growth.

Deloitte Access Economics partner and report lead author, Stephen Smith, said: “The backdrop of a solid domestic economy, business profits continuing to grow at healthy rates, low borrowing costs, and record state government infrastructure spending in NSW and Victoria, all suggest that the times are right for a recovery in private sector investment.

“Much of the good news is concentrated in the non-mining sector, which saw an increase in business investment over the past year. But there is reason to be sceptical about the extent to which this positive backdrop will continue to support investment over the medium term.

“A number of leading indicators, including the capex survey conducted by the Australian Bureau of Statistics, and the value of building approvals remain relatively subdued.

“There are also doubts about whether the mining sector will be a driver of business investment in the short term. Despite the fact that profits have grown by almost 350% in the past two years, investment in new capacity has been weak. A number of miners are now investing to maintain their production capacity at current levels, but this ‘sustaining investment’ is much smaller than the levels seen during the resources boom.

“Given these caveats, the recovery in business investment is likely to occur slightly slower than many have predicted.”

Over the last few years there has been a notable increase in the value of infrastructure projects listed in the Investment Monitor database.1

“Activity is expected to continue lifting from the trough observed in 2015, reaching a peak of almost $40 billion in 2019,” Smith said.

A number of large NSW projects, such as the $8.3 billion Sydney Metro Northwest are scheduled to wrap up in 2019, while others such as the $4.9 billion Pacific Highway upgrade from Woolgoolga to Ballina, the $3 billion NorthConnex, and the $2.1 billion Sydney CBD light rail are expected to be complete in 2020.

Adding to this, some of the largest projects currently underway are near the mid-point of their construction cycle. These include Sydney’s $16.8 billion WestConnex and the $2.9 billion first stage of the Perth METRONET.

“Although the healthy project pipeline will continue to support elevated levels of infrastructure activity, we expect calendar year 2019 to be the peak for this cycle,” Smith said.

“The factors that have supported the current surge in infrastructure spending are beginning to wane. There are fewer assets left to privatise, and the slowing housing market is weighing on property tax collections. That said, the NSW state election, scheduled for March, creates the prospect of additional projects entering the database.”

Key figures for the December quarter include:

  • The value of database projects fell by $27.0 billion to $679.1 billion – a 0.9% decrease from the previous quarter that places the value of the database at a near decade low
  • The value of definite projects (those under construction or committed) decreased by $17.9 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 $86.8 billion over the year, a 24.3% decrease
  • The value of planned projects (those under consideration or possible) decreased by $9.0 billion over the quarter. Despite this, planned work has grown by 5.4% over the past year.

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.

Was this article helpful?
0 out of 0 found this helpful