The latest Deloitte Access Economics “Investment Monitor” (via Westpac research) shows investment projects in the pipeline in Australia. It does not paint a very positive picture.
The Reserve Bank of Australia have been talking about a resource investment ‘peak’ for some time, and this report shows many signs of confirming this. The RBA thus wants to see a ‘transition’ from mining investment into other sectors of the economy, and lowered interest rates during the back half of 2012 to encourage investment. Latest economic figures are not showing much of a pick-up in other sectors though.
So this Deloitte report is going to be closely read by the RBA. They want the ‘transition’ so that as mining investment slows, other areas grow. The slowdown in investment indicated in this report is making it look like the need for ‘transition’ is getting more urgent.
- The report estimated the project pipeline to be $928.9bn in March (a decline of $24.7bn, –2.6%, from $953.6bn at the end of 2012)
- While the total project pipeline shrank, the value of projects under construction edged higher, increasing to $409bn, up from $405bn three months ago
- The value of definite projects (those under construction or committed) also rose, increasing to $452bn from $445bn in December. However, this uptick was only sufficient to offset losses over the previous three quarters.
There is a looming downturn in investment apparent in the report:
- The pipeline of projects under consideration declined by $37bn in the March quarter and is $155bn below its peak at the end of 2010. Notably, as major coal seam gas projects advanced to the definite stage there was an absence of major new projects to replace them
- The value of projects under consideration fell to $171bn in March, down from $208bn in December.
- The value of “possible” projects reached a new high of $306bn in March. This is some $6bn higher than three months ago and $146bn higher than at the end of 2010. But, there is considerable uncertainty surrounding the likelihood and timing of “possible” projects proceeding to construction. Some of these ‘possible’ projects are mere pie-in-the-sky. I don’t want to come across as some sort of bear with a sore head, but for example, this category includes such projects as the long talked about $61bn Very Fast Train.
- The previous edition of the Investment Monitor identified the top 10 projects by value which may receive the go ahead in 2013 as critical to the investment outlook. Together these 10 projects were valued at $126bn, of which 4 LNG projects account for $86bn and 3 iron ore projects some $23bn. Three months on, the largest of these 10 projects, Woodside’s Browse LNG project, has been shelved. The remaining nine seem no closer to proceeding.
In short – this is a very negative report. Its doubtful, to me at least, that RBA’s monetary policy tools can do much more to help. Pretty much all the RBA can do is lower interest rates further. This report will hasten the rate cuts.
(Thanks to Westpac Economics for the research)