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Deloitte Access Economics Investment Monitor

Project investment takes a hit

7 FEBRUARY 2023: The government-led boom in infrastructure investment pushed the value of project investment within a hair of an all-time high in September 2023. But the capacity constraints and cost blow outs of the past two years came to a head in December quarter. A number of major transport projects reached completion, while the Federal Government pulled funding from 50 road and rail projects across Australia in response to the Independent Review of the Infrastructure Investment Program.

As a result, the total value of projects in Deloitte Access Economics’ Investment Monitor database fell slightly – by 0.8% – to $948 billion in December quarter. This marked the first quarterly decline in total database value since the onset of the pandemic in June 2020. Database year-on-year growth slowed to 3.1% after peaking at 14.7% in June 2022.

The flow of new investment was strong with over $35 billion worth of new projects added to the database in the quarter. This was the highest level of quarterly additions since 2019.

But the $35 billion worth of new projects were not enough to offset the $37 billion worth of projects that either completed construction or were deleted from the database. The completion of Sydney’s WestConnex and Melbourne’s Sunbury Line Rail upgrade accounted for over $18 billion worth of completions alone.

There was a further $4.5 billion worth of deletions stemming from the transport industry after projects were scrapped following the Federal Government’s response to the independent review. A number of other projects that had federal funding withdrawn remain in the database, but have been moved to the planning stages with state governments still to decide whether to proceed under alternative funding arrangements.

The $424 billion worth of definite projects in the database (defined as those under construction or committed) is 4.8% lower than a quarter ago and 1.2% lower than a year ago. Despite the decline, the value of definite project investment is still around 44% higher than in the same quarter pre-pandemic.

 The value of definite investment

The decline in definite investment was partly absorbed by an increase in the value of planned investment (which includes projects defined as under consideration or possible), which grew by $14 billion in the quarter.

At $524 billion, the total value of planned projects is now at the highest level on record for the database. But this could come under pressure in coming quarters as state governments finalise decisions on projects that have had federal funding cuts. Fiscal headroom is already tight across the larger states and territories including Victoria and New South Wales, leaving significant uncertainty around whether governments will proceed with planned projects in the absence of federal funding.

The total value of definite project investment in the transport industry fell 11% in December quarter. Transport projects still account for 51% of the total value of definite investment in the database, but that has retraced from a peak of 59% recorded in late 2022.

Releasing the latest edition of the quarterly Investment Monitor report, Deloitte Access Economics partner and lead author, Stephen Smith, said: “The total level of business investment in the Australian economy grew by an impressive 8.9% in 2023. That was a particularly strong result in the context of 425 basis points of rate hikes and a sluggish outlook for demand.

“Part of last year’s surge in investment can be attributed to businesses playing catch-up after the pandemic. But there are signs that the downturn in the business cycle is starting to take a toll on investment.

“Measures of capacity utilisation have eased from earlier peaks, growth in business profits has slowed, while forward looking indicators of building activity such as approvals have deteriorated since mid-2023. Commercial construction activity and investment in machinery and equipment are expected to slow.

“But there are some brighter spots. Long run growth opportunities from Australia’s abundant supply of critical minerals and the transition to a net-zero economy are expected to underpin resilient engineering activity, even amid near-term economic pain.

“The massive pipeline of transport infrastructure that is under construction or committed – even despite the recent cuts and reprioritisation of spending – will also continue to support activity through this leg of the business cycle.”

Overall, Deloitte Access Economics is forecasting growth in business investment to slow to 2.7% in 2024 and 1.7% in 2025 before launching a recovery.

Key Investment Monitor figures for the June quarter include:

  • The total value of projects in the database fell by $7.2 billion to $948.1 billion – a 0.8% decrease from the previous quarter
  • The value of definite projects (those under construction or committed) decreased by $21.2 billion (11%), to $423.9 billion
  • The value of planned projects (those under consideration or possible) increased by $14.0 billion over the quarter to $524.1 billion, the highest level recorded in the history of the Investment Monitor database.   

Deloitte Access Economics’ Investment Monitor is primarily a source of information for businesses and others about major engineering and commercial construction projects and their promoters. It is also a barometer of structural change in the Australian economy, and of the investment climate – now and in the future.

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