Government and business investment in Australian projects is expected to grow steadily in 2022 before accelerating in 2023 and 2024, revealed Deloitte Access Economics in its latest quarterly Investment Monitor report.
Investment Monitor studies individual Australian construction and investment projects with a fixed gross capital expenditure of $50 million or above. This quarter, the report analysed 1,393 Australian investments with a projected value of $846.4 billion, a 6.7% increase from the previous quarter. Authors consider project investment a key influencer for predicting future economic growth.
According to the findings, business investments right before Omicron hit had returned to pre-COVID levels and had never dropped more than 5% below where they were before the pandemic hit.
However, the report speculates the emergence of a pandemic ‘tax’ on investment expectations, given the looming uncertainty around COVID is fueling ambiguity around the ‘when’ and ‘what’ of any future expansion plans.
“Potentially more important still, the longer that the COVID disruptions continue, the greater the chance that some changes – such as people working from home – will prove permanent, with implications for office demand in particular,” Deloitte Access Economics Partner and report lead author Stephen Smith said.
Beyond demand for physical workspaces, the report highlights that the value of publicly funded infrastructure projects under construction is forecast to surpass $310 billion in 2022 - a 50% jump from current levels and an almost 150% jump from the levels seen during the trough in 2015.
This rapid increase in infrastructure investment is on account of the transport industry, the report suggests, with the value of transport projects set to surpass $250 billion over the coming years.
Smith cautioned that there are also a number of longer-term risks. “Capital city mobility didn’t return to pre-COVID levels in either 2020 or 2021, and the Omicron outbreak points to this trend continuing in early 2022. That will have implications for transport networks, with likely changes in weekday peak demand and a greater preference for private transport.”
Speaking of economic growth, despite the global economy growing by 5.6% in 2021, matching the pre-GFC growth record of the past three decades in 2007, the global economy is forecast to only grow by 4.7% in 2022 before dipping further.
Nonetheless, particular to Australia, Investment Monitor findings indicate a steady growth for government and business investment in Australian projects in 2022, before accelerating in 2023 and 2024. The Australian dollar is forecast to depreciate only modestly over the coming years – remaining at $0.70 US cents per Australian dollar.
The weakening in global economic growth has been attributed to the impact of supply disruptions, higher input costs, rising interest rates and ongoing pressure from new COVID infections.
Following the spike in global interest rates, investments will likely become costlier, weakening demand. However, public investment is forecast to grow in 2022 before falling in 2023 as the pipeline of infrastructure investment work reaches a plateau.
Commenting on the findings, Deloitte Access Economics Partner and report lead author Stephen Smith said, “Investment has been supported by government investment incentives, record infrastructure spending by state governments, the strength of the share market, as well as the fall in interest rates that accompanied the outbreak of COVID.”
“Yet there are still a number of concerns for the outlook in 2022; contractors are facing some significant challenges,” he added.
Smith noted that Delta lockdowns in eastern Australia created a backlog of work, tight borders and a highly competitive global market continue to make it difficult to hire migrant workers, a large pipeline of residential construction activity in Australia creates additional competition for workers, and global supply shortages are leading to large increases in the cost of building materials such as timber and steel. These factors, along with Omicron-related risks, make it harder than ever for contractors to deliver projects on time and on budget, he added.
Given the impact of Omicron on investments and the predicted steady growth, it remains to be seen how Australia capitalizes on this interest from investors amid its ongoing struggle with worker shortage, border restrictions and a competitive business environment.