Oct 31, 2016

Construction investment fails to stack up

Construction investment fails to stack up

Engineering construction has continued to shrink as mining investment slides, with engineering construction work done falling to the lowest levels seen since late 2010, according to the latest quarterly investment report from Deloitte Access Economics.

The worst of the falls have already occurred, but there is still more to come as massive gas projects finish up construction and move into production, according to Deloitte Access Economics partner and report author Stephen Smith.

“The commercial construction sector isn’t providing as much relief as expected,” Mr Smith said.

Deloitte Access Economics partner Stephen Smith.

“While the pipeline of non-residential construction buildings has continued to grow, it has still remained relatively low.  On the bright side, approvals continue to be supported by the lower dollar, with commercial building and office approvals lifting from their recent troughs.”

While public sector construction wasn’t sufficient to fill the gap left by engineering construction, it had helped to soften the landing, he said.

“The public sector engineering construction spend has been steadily increasing, and the outlook for public capex looks promising,” Mr Smith said.

“These trends should come as no surprise.  On the one hand commodity prices have lifted, while on the other hand interest rates remain at record lows and the $A is off the heights reached in 2012-13.  That economic backdrop says that the return on investment is rising at the same time as the cost of investment is falling.  So although investment is expected to continue sliding over the coming year, there is now some light at the end of the tunnel.”

Overall, total recorded value of projects in the Investment Monitor database for the September quarter is $810.9 billion.  This represents a 1.4 per cent decrease from the previous quarter, and is 0.4 per cent below the level recorded a year earlier.

The value of definite projects in the database (those under construction or committed) increased by just $1.7 billion over the quarter, a 0.4 per cent rise.  This takes the value of definite projects to the highest level in almost two years.

 The value of planned projects in the database (those under consideration or possible) contracted further during the September quarter.  The $13.3 billion decrease represented a 3.4 per cent decline from the previous quarter.