Australia: Infrastructure activity surges 2.8% in Q1 - Westpac

Australian infrastructure activity advanced in the opening quarter of 2017, marking its first gain since June 2015 and only the third increase since September 2012, notes Andrew Hanlan, Senior Economist at Westpac.

Key Quotes

“The downturn in mining investment, which has dominated conditions since late 2012, is nearing its end.”

“Total real infrastructure activity increased by 2.8% in the March quarter, up $0.55bn. This trimmed the annual rate of decline to -12.5% from -26.8% in mid-2016.”

“In dollar terms, the moderation in the rate of decline is striking. In mid-2016, work was some $7.6bn below the level of a year earlier. For March, the figure was -$2.9bn.”

“Contributing to this development is a lift in public works and gains in the private non-mining segment.”

“Public investment is in an upswing as governments commit to much needed transport projects. Public infrastructure work grew by 2.5% in the quarter, to be 10% above the level of a year ago.”

“Private infrastructure activity has lifted of late in response to strong population growth and boosted by the housing boom. Work jumped an estimated 11% in the quarter, swamping a fall of only 2% in mining works. Together, that saw total private infrastructure activity rise by 3% in the quarter.”

“Commencements: There has been a lift in the value of projects proceeding, breaking a three year downturn.”

“In 2016, total infrastructure commencements were $73bn, a 19% increase on the year prior. That follows falls of -39%, -11% and -15% for 2013 through to 2015.”

“Public works drove the improvement in 2016, accounting for $10.1bn of the $11.6bn lift in total commencements. Public projects worth $38bn began work in 2016.”

“In March 2017, commencements were valued at $14bn, down from $18bn on average for 2016, largely due to a softer quarter for public projects. This is likely to be a temporary dip with governments continuing to commit to new initiatives.”

“Work pipeline: Significant progress has been made in reducing the sizeable work pipeline as construction of the remaining gas projects is to be progressively completed during the remainder of 2017 and into 2018. The pipeline now stands at $60bn, down from $71bn a year ago and from a peak of $169bn in 2012.”

“Prospects are for a near-term consolidation in total infrastructure activity. Work on oil & gas projects still has some way to fall, with the current level of activity at around $4.9bn well above commencements, which are running at around $0.4bn a quarter. Offsetting this weakness is further upside to public works, as well as some potential additional gains in non-mining activity.”