According to a recent Deloitte Access Economics report, Australia’s government-led boom in infrastructure investment pushed the value of project investment very close to 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 Q4 2023. 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’s latest Investment Monitor database fell by 0.8% to AU$948 billion in Q4 2023 – the first quarterly decline in total database value since 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 – the highest quarterly addition since 2019.
But the $35 billion of new projects weren’t enough to offset the $37 billion of projects that either completed construction or were deleted from the database (completion of Sydney’s WestConnex and Melbourne’s Sunbury Line Rail upgrade accounted for over $18 billion of completions alone).
A further $4.5 billion worth of deletions stemmed 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 A number of other projects that had federal funding withdrawn remain in the database, but have been moved to the planning stages with state governments still to decide whether to proceed under alternative funding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 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-COVID.
The value of definite investment
The decline in definite investment was partly absorbed by an increase in the value of planned investment (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. 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 NSW, 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 Q4 2023. Transport projects still account for 51% of the total value of definite investment in the database, but that has retracted from a peak of 59% late 2022.
Commenting on the report, Deloitte Access Economics partner, 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 COVID. 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 is forecasting growth in business investment to slow to 2.7% in 2024 and 1.7% in 2025 before launching a recovery.
Key figures from the report:
- Total value of projects in the database fell by $7.2 billion to $948.1 billion – a 0.8% decrease from previous quarter;
- Value of definite projects (those under construction or committed) decreased by $21.2 billion (11%), to $423.9 billion; and
- Value of planned projects (those under consideration or possible) increased by $14.0 billion over the quarter to $524.1 billion.