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Investment Monitor September 2013

The trouble with transition


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29 October 2013:  The Australian economy is in transition.  It is clear that the investment in the resources sector which has underpinned growth for the best part of a decade is fading, and the economy will be relying on a more broad-based growth profile in the years ahead.  However the composition of growth in the medium term – and, in particular, what the key driver of growth will be – remains less clear.

Retail spending is soft and the wider consumer spending measure has also been subdued of late, despite record low interest rates, with few signs of revival.  Meanwhile, business investment continues to weigh on the outlook, and hope is fading that non-resource investment will be a significant contributor to economic growth in the medium term.  

The value of project commencements in the non-resource sectors (both engineering and non-residential) has been going sideways since the 2008 downturn.  Indeed, the value of total non-residential work commenced over the past year is at the lowest point since the immediate aftermath of the Global Financial Crisis, when the then government rolled out the school building program in an effort to lift activity.

At the same time, the value of commencements in the resources sector continues to decline, underlining the outlook for resources investment and the need for the economy to find a new driver of economic growth.

The September 2013 issue of Investment Monitor saw the total value of projects in the database fall.  The value of projects decreased by $3.4 billion to $873.7 billion, representing a 0.4% fall from the June quarter of 2013 to be 5.7% lower than a year ago.  For the first time in a decade, Investment Monitor has now recorded a decline in the overall value of projects in the database for three consecutive quarters.

The value of definite projects in the database (those under construction or committed) slipped marginally over the September quarter of 2013, falling in value by 0.7% to $464.7 billion.  However, this is still an increase of 0.6% over the September quarter of 2012.

The value of planned projects in the database (those under consideration or possible) remained relatively constant in the September quarter as some large deletions were offset by new projects.  However, the value of projects in the pipeline is down 12% from September 2012.

Where to from here?  A broad-based growth profile needs investment spending to contribute its fair share, particularly given the extended malaise affecting households and related softness in consumer activity.  Business investment is waning, and in an uncertain period of economic transition, public infrastructure spending can play an important role.

Post-election, public investment in key infrastructure projects may receive a boost.  In part that is because of the arrival of the ‘infrastructure Prime Minister’.  But it is also the new Treasurer who is pushing the funding of projects at the top of the agenda.

In a phase in which business investment spending is looking increasingly shaky, and support to economic activity is required, a more active public sector role in financing and supporting infrastructure projects should be welcomed.

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