Widespread government spending is propping up infrastructure investment at a rate not seen for nearly a decade, as business investment is forecast to decline under the weight of hefty interest rate hikes to date.
The new reporting by Deloitte Access Economics comes amid concerns about governments of all stripes across the country driving up demand through spending, as some analysts suggest it could be contributing to persistently elevated inflation.
The latest report monitoring the national infrastructure pipeline — measuring projects above $50m — found the total value of projects increased $9 billion to $955b in the three months to September 30, but growth was being driven by cost blowouts on existing projects, not new ones.
New projects, totalling $6b in the quarter, were at their lowest level in two years, just enough to offset completions and cancellations worth $5b.
“The level of ‘catch-up’ investment in the economy is slowing. Business confidence is subdued, business profits have fallen, and lending to businesses is flatlining,” said report lead author Sheraan Underwood.
The majority of projects under a cloud are in NSW and Victoria where government debt levels are forcing the delay or cancellation of flagship infrastructure builds. Cost blowouts are also putting further pressure on those State Budgets at a time of much higher borrowing costs.
Still, the value of planned projects — under consideration or possible — has increased to $510b, a $3.7b lift over the quarter.
The report notes the WA Government’s four-year investment program increased 15 per cent in the most recent State Budget to a record $9.8b per year. But it also notes the WA Government and its Queensland counterpart are in much better fiscal positions than NSW and Victoria, meaning cost blowouts would likely have less impact.
A total of $46b of projects are under construction in WA, according to Deloitte, with engineering work up one-fifth in 2022-23. These include the $575 million rare earths facility by Lynas in Kalgoorlie.
Mr Underwood said a more stable economic outlook should support growth in business investment in 2025. Deloitte has forecast business investment growth nationally to slide to 1.3 per cent next year, down from 6.2 per cent this year.