Investment Monitor March 2014: Engineering work steady as pipeline thinsDOWNLOAD
30 April 2014: Growth remains solid, if below trend, and the key non-resources areas of the economy – retail spending and housing construction – are both showing encouraging signs. According to the Reserve Bank Governor, a boom in housing construction over the next couple of years is very much on track, while, in nominal terms, retail sales growth is also solid.
That’s all good news, but perhaps not quite good enough. The main reason why Australian economic growth hasn’t slowed notably is because neither has engineering construction activity. Indeed, the transition away from resources investment spending is yet to begin in earnest. The value of definite engineering projects listed in Investment Monitor, has stagnated for yet another quarter, while the value of engineering projects in planning gradually slips away.
That levelling in engineering activity is consistent with the broader data available through the national accounts and other sources, and means that engineering activity has now been essentially static for close to two years.
That is unlikely to be true for much longer. The message coming from the Investment Monitor database is that the modest fall in engineering construction activity to date is set to accelerate. That outlook is in line with the data contained in the latest survey of private sector capital expenditure intentions published by the Australian Bureau of Statistics. More importantly, the survey results for non-mining investment intentions in 2014-15 were particularly bleak. While housing construction and retail spending appear to be strengthening, the other key component of domestic demand – non-residential construction activity – is yet to stir.
The March 2014 issue of Investment Monitor saw the value of projects in the database rise to $878.8 billion, representing a 1.4% increase from the December quarter of 2013, though remained 5.4% below the level recorded a year earlier.
The value of definite projects in the database (those under construction or committed) increased by almost $2.6 billion over the March quarter of 2014 following two quarters of decline. Despite that 2.3% increase in the quarter, the value of definite projects in the database remains down by 8.6% over the last year. The increase in the value of definite projects in the March quarter came despite a $3.9 billion fall in the value of committed projects. The value of projects under construction rose by almost $6.5 billion, or more than 1.6%.
The value of planned projects in the database (those under consideration or possible) rose solidly during the March quarter, up by almost $10 billion. That follows a rise of more than $17.5 billion in the December quarter. A $13 billion increase in the value of possible projects in the quarter was only partly offset by a $3 billion fall in the value of projects classified as under consideration.
The overall outlook for Australian economic growth remains below trend. Deloitte Access Economics’ growth forecasts have edged up recently as a result of the strengthening response of retail spending and housing construction to record low interest rates. However growth is still expected to remain stuck below trend through to late 2015.
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