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Investment Monitor March 2013: Passing the baton


02 May 2013: The Australian economy is changing gears, no more so than when it comes to major project investment.  Mining projects have been the star, but mining investment will peak in the next 12 months, passing the baton to other elements of the investment landscape which are clearly not ready for it.

That’s a bit like having Usain Bolt lead out your relay team, passing off to Homer Simpson for the second leg.

The March 2013 issue of Investment Monitor saw the total value of projects in the database fall.  The value of projects decreased by $24.7 billion to be $928.9 billion - that’s a 2.6% fall from the December quarter 2012, to finish only marginally (0.8%) higher than a year ago. 

The value of definite projects in the database (under construction or committed) made a bounce back over the March 2013 quarter, rising in value by 1.5% to be $451.5 billion.  However, that is only marginally above the value of definite projects at the same time last year, with gains over the March quarter of 2013 acting to offset losses through the course of 2012.

The value of planned projects in the database (those under consideration or possible) fell by a considerable $31.4 billion, or 6.2% down from December 2012.

In the last issue we noted the top 10 projects by value which may receive the green light in 2013 as critical to the future path of investment in Australia.  With a quarter of the year gone, the largest of these (Woodside’s $43 billion Browse LNG project) has been shelved (to allow Woodside to ‘review alternative Browse development concepts’), and the remaining nine seem no closer to going ahead.

Overall, it is difficult to shy away from the conclusion that Australia’s high growth component of investment will soon be fading, with little prospect of an equivalent alternate investment driver coming through.

Large LNG projects continue to dominate the investment program with the value of oil and gas projects underway in excess of $200 billion.  But the pipeline of projects where final investment decisions may be soon seen contains fewer projects of this sheer scale, and a number of resources companies pulled back on their expansion plans through 2012.

There is potential to see some growth out of areas of infrastructure investment over the next few years.  That is particularly true for those areas of infrastructure which will play a supporting role to lifting mining production, including railways, port projects and electricity.  That said, other elements of infrastructure look more like tracking steady than achieving much growth.

Non-resources manufacturing investment has all but dried up in Australia, and there is no prospect of an investment resurgence at present given the $A and other competitiveness factors.

Non-residential building projects are also showing little signs of life.  New approvals have lifted over the past two years, but are still below their pre-GFC peak.  Low interest rates will provide support, but the overall environment for office and retail demand still remains somewhat dour.

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David Rumbens
Deloitte Access Economics
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Deloitte Access Economics
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