Investment Monitor December 2013: The stall before the fallDOWNLOAD
30 January 2014: The final quarter of 2013 provided some key positives for the Australian economy. With the dollar hovering around three and a half year lows, exporters and import-competing manufacturers are getting some relief; while solid house price gains, strengthening retail sales growth and strong residential building activity data have also been pointing to a stronger outlook in recent months.
But there was bad news as well. Holden’s decision to cease manufacturing in Australia from 2017 comes on top of a series of other redundancy and offshoring decisions by a range of companies. Moreover, although the Australian dollar has fallen back, it remains well above historical averages, and labour market weakness pushed the unemployment rate even higher in December to 5.8% (almost above the peak reached in mid-2009). The unemployment rate would be even higher still if not for a slump in the participation rate over the last year.
While 2013 closed with mixed economic data, the outlook for growth in 2014 remains below trend. The impending peak in resource-related investment spending has been well documented, and there were few signs of any reprieve in recent months. A further $2 billion cost blowout on the Gorgon LNG project was announced in December, while the Investment Monitor database did not record a single new LNG project beginning construction through the 2013 calendar year. Meanwhile, data from the Australian Bureau of Statistics shows that both mining and engineering investment spending were relatively flat over the past year, representing somewhat of a stall before the looming, gradual fall.
The December 2013 issue of Investment Monitor saw the total value of projects in the database decrease by more than $7.4 billion. The total value of the database fell to $866.3 billion, representing a 0.8% fall from the September quarter of 2013 and a 9.2% fall compared to a year earlier.
The value of definite projects in the database (those under construction or committed) dropped back by almost $25 billion over the December quarter of 2013, the most significant quarterly fall since the December quarter of 2008 at the height of the global economic downturn. That fall has driven the value of definite projects down by 1.2% over the last year.
The value of planned projects in the database (those under consideration or possible) rose solidly during the December quarter, up by more than $17.5 billion. A $40 billion increase in the value of projects under construction was partly offset by a $22.3 billion fall in the value of possible projects.
Public infrastructure, including transport infrastructure, has been the focus of considerable discussion in Australia over the last few months. The newly elected Federal government has directed the Productivity Commission to examine major infrastructure projects and to consider, among other things, the funding and financing of these projects, while organisations from Infrastructure Australia to the Reserve Bank and the Business Council of Australia have all contributed to the debate.
That the state of Australia’s creaking urban infrastructure is stirring the passions of Australian policymakers gives hope that a more efficient system of identifying, assessing, financing and constructing public infrastructure may be in store. That outcome would be more than welcome. However there is also a risk that any policy changes are designed with short term growth risks rather than the longer term sustainability of infrastructure spending in mind.
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