The decline in resource and energy investment and construction activity will be worse than originally thought, a leading government economist says.

In his latest report, Department of Industry, Innovation and Science Chief Economist Mark Cully says that only around $25 billion worth of resource sector investment projects are expected to be underway – down from nearly $200 billion in 2016 and only around half of what was expected within the Department’s most recent report prior to the current report.

In his report, Cully says that private capital expenditure in resource and energy projects is now at six year lows as mega projects which were previously a driving force during the resource investment boom are winding up.

Whilst commodity prices have recovered, he says these remain well below levels reached during the peak investment phase of the mining boom and that recent gains are at any rate expected to be largely unwound over the next twelve to eighteen months.

As a result, he said, focus was shifting toward cost reduction and the progression of projects to the committed stage was slowing.

“Final investment decisions for many projects have been delayed to 2017 or later, with project owners weighing up factors such as the price cycle, access to infrastructure and cost competitiveness in Australia,” Cully said in his report.

“As a result, the outlook for resources and energy investment remains subdued over the short to medium term.”

According to Cully, the number and value of projects was declining at each of the publicly announced, feasibility and committed stage.

In terms of publicly announced projects, Cully said the value of these had been impacted not only by a limited number of new projects coming through but also by the cancellation or scaling back of existing projects, such as the winding back of BHP’s Olympic Dam copper mine expansion and the cancellation of the $1.4 billion West Pilbara Iron Ore project.

Likewise, cancellations have impacted the value of projects at the feasibility phase, which fell by 13 percent in the year to October notwithstanding a backlog of developments which have become stuck in this phase as companies delay projects in order to see how market conditions unfold.

Meanwhile, the value of committed projects fell from $221 billion to $195 billion over the twelve months to October 2016 as major projects moved through to completion.

Moreover, forward looking indicators are not positive.

Exploration expenditure, Cully says, fell to ten year lows in 2015/16.

That matters because exploration activity helps to inform future development and is thus a leading indicator of likely construction activity going forward.