The outlook for business investment in Australia is healthier than it’s been for some time, according to the latest edition of Deloitte Access Economics Investment Monitor.
Releasing the March 2018 quarter report, lead author and Deloitte Access Economics national leader Stephen Smith said: “Private business investment grew by 3.7% in 2017, the first increase in annual activity since 2012.
“The improvement has been in part due to the fact that the overhang of engineering projects that commenced construction during the mining boom has finally passed. But it’s also being driven by an acceleration in commercial construction.”
Engineering construction has subtracted more than one percentage point from overall real GDP growth each year since 2014. However, engineering construction failed to subtract from growth in 2017 for the first time in five years. Adding to this, commercial construction contributed 0.2 percentage points to overall real GDP growth in 2017.
“After a number of years of relatively low investment, state and federal governments are spending large amounts of money on infrastructure projects,” Smith said.
“A significant share of public infrastructure investment is occurring in the transport sector, which in 2017 accounted for around 60% of all public engineering construction activity.”
The value of public sector transport infrastructure work grew by 21% in 2017, following a 17% gain in 2016. Project activity is concentrated in a number of large road and rail developments, primarily in Sydney and Melbourne.
“To fully understand the surge in investment, it’s useful to cast our eye forward,” Smith said. “Activity is expected to continue lifting from the trough observed in 2015, reaching a peak of around $16 billion in 2020, and not including any new projects that might be added to our Investment Monitor database in coming years.”
Key figures for the March 2018 quarter Investment Monitor included:
- The value of projects rose by $8.1 billion to $751.9 billion – a 1.1% increase from the previous quarter, but still 5.0% below the level recorded a year earlier.
- The value of definite projects (those under construction or committed) decreased by $1.8 billion to the lowest level in eight years. Falling activity has largely been driven by the completion of large LNG project construction and a number of smaller public infrastructure projects.
- The value of planned projects (those under consideration or possible rose by $9.9 billion. Planned work also increased in the past year, up 2.6% from March 2017.
Source: Deloitte