Australia's pipeline of major projects has fallen nearly eight per cent in the past year as the slowing resources sector hurts the economy.
Two of Australia’s top 20 highest value projects were cancelled during the first three months of 2015.
Both were resources projects in Queensland: the $20 billion Arrow Energy liquefied natural gas project and $10 billion Dudgeon Point coal terminal.
While there were new projects announced – the most expensive being the proposed $10.4 billion rail tunnel under Sydney Harbour – it was not enough to offset the cancelled projects, says Deloitte Access Economics’ Investment Monitor report.
The report defines major projects as those valued at $20 million or more, of which there are 987 in Australia that are either committed to or being considered.
The value of projects fell in the March quarter by $21 billion compared with the previous quarter and $56.5 billion from a year ago – to $812.3 billion.
That represents a 2.5 per cent fall from the previous quarter, and is 7.6 per cent below the level recorded a year earlier.
While there were benefits from the end of the mining boom – such as a falling Australian dollar making exports more affordable – the overall news was bad, the Deloitte Access Economics report said.
Australia had bet the house on Asian demand for our commodities, but economic growth remained below trend and wages and national income growth was in the doldrums, the report said.
The payoff that was supposed to occur for the miners, and the Australian economy overall, after massive investments in expansions has not transpired.
Despite iron ore volumes rising by an expected 14.7 per cent to 747 million tonnes in 2014/15, the value of the commodity’s exports was tipped to fall 23.7 per cent to $56.9 billion – from a record $74.7 billion – as prices fell.
“The current price environment is beginning to eat into profits,” the report said.
“That may be bad news for miners, but it’s also equally bad news for the rest of the country.
“Profits are essentially a measure of the returns to Australia (and its miners) on past investment in additional capacity.
“Lower profits, or worse yet, prices that are below production costs, mean the return to Australia is significantly less.”
The structural shift in the economy was expected but not the rate of the exceptional demise.
There were positive signs such as the economic performances of NSW and Victoria, states which are not dependent on resources activity.
Victoria was particularly praised for the fact that its share of the national economy, 22.3 per cent, had declined only moderately during the mining boom.
Construction activity in Education – Australia’s biggest non-resources, and fourth-biggest overall, export – appeared to be improving.
“With the Australian dollar tumbling, international education in Australia is now much more affordable,” the report said.
MAJOR PROJECTS ON THE SLIDE:
- Value of projects fell by $21 billion during the March quarter from December quarter to $812.3 billion.
- Value of definite projects (under construction or committed to) decreased by $4.2 billion.
- Value of planned projects fell by $16.8 billion after a larger fall during the December quarter