Later today we will be told that the Australian investment boom is well and truly over with the release of March quarter capex data from the Bureau of Statistics.
The data will reveal a sizeable fall in the March quarter, and a very big drop in the second estimate of spending for the 2015-16 financial year, which is the key figure for the Reserve Bank’s forecasts.
Yesterday two reports, one from the Bureau of Statistics and the other from the Department of Industry, provided graphic evidence of the extent of the slowdown.
The Federal Government’s Department of Industry’s half year report on investment plans in the resources sector showed the boom was on its last legs, with LNG projects dominating the $226 billion loss of projects still current (an estimated 88% of all spending).
"The value of committed projects is about to start declining, substantially, and it is clear that this will not be offset by new investments coming through the pipeline which are being increasingly delayed due to adverse market conditions,” the report from the Department of Industry said yesterday (http://www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publications/Documents/remp/REMP-April-2015.pdf).
"As a result of these market conditions, the number of resources projects being developed in Australia is now reverting back to pre-investment boom levels.
"As such, we expect investment in mineral and energy commodities to be subdued relative to the high levels seen in recent years.
"In the six months from November 2014 to April 2015, seven projects worth $2.2 billion were identified as receiving a positive Final Investment Decision and progressed to the Committed Stage. In the same period 13 projects worth $7.8 billion progressed to the Completed Stage,“ the report said.
But it was the Bureau of Statistics report (http://www.abs.gov.au/ausstats/abs@.nsf/mf/8755.0?OpenDocument) which revealed the extent of the sharp slow down in the value of construction work done in the March quarter.
The data showed the amount of construction work completed in Australia had its largest fall in almost 14 years in the March quarter, dragged down by a record slump in the mining sector (which was not unexpected).
In the first three months of 2015, completed construction work fell 2.4% – a result twice as bad as the market was expecting.
For the year to March, the amount of work done dropped a massive 8.8%, dragged down by the largest quarterly fall in engineering work since the Australian Bureau of Statistics began keeping records in 1986.
It was also the worst since the massive 22.8% drop in the June quarter of 2001, which suffered the impact of the end of the 2000 Olympic building boom, the tech stock crash and the introduction of the GST.
Engineering work done, which includes mines, roads, bridges and the like, fell 7.3% (seasonally adjusted) in the quarter and in annual terms was down by more than 20%, the ABS said.
Commonwealth Bank of Australia economist Gareth Aird said the weakness in the construction sector will be a drag on official March quarter economic growth figures, due out a week yesterday. “Further declines are expected over coming quarters and this will act as a headwind to growth,” he said yesterday in an interview with AAP.
Offsetting the bad news from engineering the resources sector was a solid performance of the housing and construction sector, which lifted the value of activity in the quarter.
Total building work done on homes rose 4.8% (seasonally adjusted) and non-residential work such as offices and shops was up 1% in the quarter, which some economists said was a ’small’ surprise.
But the rise in construction activity has nowhere been enough to offset the massive falls in resource investment and spending.
Even though the falls were sharp, the sums involved are still substantial. For example while there was a 2.4% drop in the value of construction work done int he quarter, it was still a huge $48.4 billion.
The value of building work done rose 3.3% to $23.6 billion (seasonally adjusted). And the value of engineering work fell 7.3% to $24.8 billion which, again, is still a large amount of spending.
