Deloitte Access Economics Investment Monitor - First steps on the road to recovery

31 August 2020

Investment is expected to be among the hardest hit parts of the economy in 2020 and 2021.

Releasing the latest edition of Deloitte Access Economics’ quarterly Investment Monitor, Deloitte Access Economics partner and report lead author, Stephen Smith, said: “COVID-19 has led to a collapse in both demand and business confidence, and many businesses are responding by consolidating their operations and making savings where they can.

“That is likely to see an increase in the number of investment projects being cancelled or delayed, while there will also be fewer new projects announced, and private business investment is forecast to fall by 15% in 2020, reaching its lowest point as a share of the economy in almost two decades.

“When the recovery starts, business investment will certainly play an important role. Investment drives growth in the economy, and without growth fewer jobs are created.

“But the timing of the recovery remains highly uncertain, as does the question of whether conditions will get worse before they get better.

“The key here is the date at which production capacity starts to be threatened by rising sales, meaning that there’s an improving business case to invest. That date will differ from industry to industry, and from business to business, but may still be some time away.”

“Commercial construction may experience a particularly slow recovery due to the increased adoption of work-from-home arrangements and a smaller need for retail space because of the growth of e-commerce.

“More importantly still, this sector is increasingly working through the existing pipeline of work, without that pipeline being added to at a matching pace.

Mining investment is likely to perform relatively well amid strong demand from China. Yet there’s an important caveat. Energy prices – including gas prices – have fallen sharply through 2020.

“Government spending to date has largely been focused on supporting Australian workers and the health care system. When the latest COVID-19 outbreak is contained, the focus of government efforts will shift to stimulating the economy, and infrastructure investment is set to play a fundamental role in this stimulus effort.”

There are currently 555 government infrastructure investment projects underway or in planning in Australia, worth a combined $314 billion. The transport industry accounts for less than half of the number of projects, but almost three quarters of total project value.

Current government infrastructure investment projects by industry

Smith said that, given the already burgeoning pipeline of infrastructure projects, governments are focusing on those that are ‘shovel-ready’ as well as fast-tracking other projects.

“Enhanced cooperation between the federal and state and territory governments means that environmental approvals may take only one third of the time they usually do, and the aim is that the total assessment and approval process will be condensed from three-and-a-half years to just under two years. This is no small task.

“There are currently $155 billion worth of infrastructure investment projects underway across Australia, and a further $65 billion worth of projects are scheduled to commence construction in 2020 – many of which can be considered ‘shovel-ready’.

“Almost $100 billion worth of projects are scheduled to commence construction beyond 2020 or have no announced start date.

“The fast tracking of approvals may mean that more of these projects progress through to construction – and sooner – than would otherwise be the case. Adding to this, there is also the potential for new project announcements in coming months that would add to the existing pipeline of work.”

Government infrastructure investment projects by construction start date

“With interest rates at record lows and the unemployment rate at the highest level in decades, the costs of infrastructure are lower than they were, and the benefits are higher,” Smith said.

“That doesn’t say governments should spend frivolously, but it does say the cut-off for projects considered ‘worthwhile doing’ has shifted sharply.

“And while governments are expected to invest heavily in new infrastructure, Australia cannot rely on the governments alone. Private investment has been weak for several years.

“While policymakers have been commenting on the appropriateness of hurdle rates, companies have been waiting for the sort of productivity enhancing reforms that this pandemic may generate. That would include improvements to infrastructure in our suburbs and regions, key tax reforms as well progress in highly contested policy spaces.

“Australian governments would do well to help develop a more competitive, productive and prosperous private sector — one with the confidence to invest in the future.”

Key Investment Monitor figures for the June quarter include:

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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Source:  Deloitte -

Date of Original:  03 August 2020

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