Transport projects have now replaced mining infrastructure spending in Australia

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New engineering and commercial construction activity increased by 12% in the last year, reaching its highest level since the start of 2016, according to the Deloitte Access Economics Investment Monitor for the December quarter.

“The improvement is partly due to the fact that the overhang of engineering work that commenced construction during the mining boom has finally passed,” says Deloitte partner Stephen Smith.

“But it also reflects a greater willingness from businesses to once again spend money on expanding capacity and maintaining existing capacity.”

There is now a divergence in the outlook for the mining and non-mining sectors despite more than 18 months of better news on commodity prices and a lift in exploration expenditure.

“Miners appear focused on controlling costs, and so recent strong profit results are more likely to be returned as dividends than laid out on new investments,” Smith says.

“Meanwhile, non-mining investment has turned a corner. Profits are up, interest rates remain low, measures of capacity utilisation are tightening, and the economy continues to strengthen. This combination of factors has supported a lift in business confidence and provides a solid backdrop for investment prospects.”

Transport infrastructure investment has re-emerged as a key driver, as this chart shows:

Source: Deloitte Access Economics

Mining investment has fallen in five years from around three fifths of all definite project activity to less than one third.

“Modest gains in private business investment are expected over the next five years,” says Smith.

“Business investment is forecast to settle at around 13% of the economy, well above the 8% average prior to the mining boom.”

The Investment Monitor database has details of 1,148 Australian investment projects valued at $20 million or more.

The total recorded value of projects in the database is $743.8 billion, a 0.8% decrease from the previous quarter and is 5% below the level recorded a year earlier.

The value of definite projects, those under construction or committed, fell by $3.1 billion to the lowest level since March 2011, driven most recently by the end of construction at a number of large LNG projects in Queensland and Western Australia.

The value of planned projects, those under consideration or possible, fell slightly, by around $2.8 billion. Planned work has also fallen in the past year, down 2.2% from December 2016.

While the report doesn’t identify whether the investment is from government or the private sector, or where it occurs, both the NSW and Victorian governments have embarked on massive infrastructure programs in recent years.

Sydney alone has more than $50 billion worth of transport projects underway, including the $17 billion WestConnex tollway, the $14bn Northern Beaches and Western Harbour tollways, the $3bn NorthConnex, the $8.3bn Sydney Metro North West rail line, and $2.1b Sydney Light Rail.

Melbourne’s transport projects include the $16.5bn North East Link toll road, the $6.7bn West Gate Tunnel and and the $11bn Metro rail project.

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