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Investment Monitor December 2011: The Brisbane Line


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1 February 2012: Australia’s investment agenda continues to grow.  The December 2011 issue of Investment Monitor sees a further gain in the value of projects recorded of $18.7 billion, or 2.1%.  The value of projects in the database has increased by 17.5% over the past year.

Importantly for current activity in the Australian economy, much of the recent growth has been in definite projects (those classed as under construction or committed to commence soon).  In December 2011 they reached a value of $415.4 billion, a 2.1% increase on the value recorded in the September quarter, and a massive 43.0% rise over the past year.

Major investment projects have continued to transition through planning stages despite the uncertainties we have seen with the global economy over recent months.  These include Origin Energy’s $19.6 billion Australia Pacific LNG project at Gladstone which is now underway.  Since publication date, we have also seen approval for Inpex’s giant $33 billion gas project based in Darwin.

The value of projects underway provides a healthy buffer against a potential global slowdown in 2012.  Indeed, it is already providing the bulk of growth for the Australian economy at the moment.  Engineering construction activity accounted for all of the growth in Australia’s economy during the September quarter of 2011.

Rarely have Australia’s economic prospects been as geographically skewed as they are at present.
During World War II debate raged within Australia about a secret Defence plan to concede a large part of the Australian continent in the event of a full scale Japanese invasion – everything to the north of the famed ‘Brisbane Line’.

Fast forward to today and the Brisbane Line could be used to characterise Australia’s economy.  Today it is economic activity to the north and west which is defining Australia’s
prospects, and protecting the country against the weak global economic environment.

The area north and west of the Brisbane Line accounts for only 20% of Australia’s employment.  Yet when it comes to major investment projects under construction that part of Australia above the Brisbane Line dominates, with $161.3 billion of investment under construction, or 46% of the total.  

The project pipeline is even more skewed, with $323.5 billion of investment committed or in planning above the Brisbane line – a massive 57% of total investment committed or in planning.

Mining projects now account for 46% of all investment projects currently under construction or committed in Investment Monitor.  That breadth of projects helped to deliver the strongest growth in business investment spending ever seen during the September quarter of 2011 (at a time when many other sectors of the Australian economy were in the doldrums).

But this is not likely to be the end of the investment surge in Australia.  Deloitte Access Economics expects investment levels to continue rising over 2011-12 and the following two years.  This is very much driven by the healthy pipeline of projects awaiting approval, of which mining projects again dominate (accounting for 44% of the value of projects in planning).

The investment agenda for economic infrastructure (covering transport, ports, energy, water and telecommunications projects) is also partially caught in the slip stream of the mining investment boom, particularly via a range of ports and energy projects.  But long overdue improvements to urban infrastructure are also on the priority list.  Spending on flood reconstruction is also supporting the agenda, as will the roll-out of the NBN for some time yet.

Non-residential building activity tends to be driven by the sectors stuck in the slow lane of our two speed economy.  The impact of the Federal stimulus spending has now come and gone, and weak retail spending and soft office demand are weighing on the value of building approvals.  That suggests a turnaround for non-residential building may still be a way off yet.

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