Private business investment has been hit hard by the COVID-19 pandemic and its impact could linger over both this year and the next.
But the outlook is improving, consultants Deloitte Access Economics say in the latest quarterly Investment Monitor released on Thursday.
It notes coronavirus cases remain remain relatively small, the vaccine rollout is expected to start shortly and the Reserve Bank has promised to keep interest rates low for some years.
“The turnaround in business confidence, which is at its highest level in two-and-a-half years, has been particularly remarkable,” Deloitte partner Stephen Smith says.
“Clearly business increasingly thinks that COVID-19 is a bullet that Australia has largely dodged.”
In the meantime, infrastructure investment by governments will play a key role in stimulating the economy and creating jobs.
The latest round of government budgets has seen a quarter of a trillion dollars directed towards infrastructure from 2020/21 to 2023/24.
“The costs of infrastructure have fallen, with interest rates at record lows, while the benefits have risen, with higher spending to help partly offset the impact from winding back JobKeeper and JobSeeker,” Mr Smith says.
The current pipeline of public infrastructure investment is dominated by transport projects, with those with an estimated cost of $1 billion or more accounting for 60 per cent of total investment.
These projects are mostly concentrated in NSW and Victoria.
But Mr Smith warns there are challenges looming, with the list of builders willing to bid on major projects shrinking after a string of highly publicised losses among contractors.
“There are also concerns around shortages of everything from building materials to skilled builders. This all raises the risk of cost blowouts and delays,” Mr Smith said.
He believes careful planning, a less adversarial relationship between governments and contractors, and a focus on smaller projects will all help.
Deloitte research shows the value of investment projects rose by $11.6 billion, or 1.5 per cent, in the December quarter to a total $759.7 billion.
The value of definite projects – those under construction or committed – increased by $26.7 billion over the quarter to a total of $272.2 billion.
However, the value of planned projects – those under consideration or possible – decreased by $15.2 billion over the quarter to $487.5 billion, driven by projects progressing through planning stages and several being cancelled.
Originally published 4 February 2021, 12:05 am