Australia’s economy, along with a small number of others, used its underlying strengths and residual capacities to dodge the worst of the GFC bullet. Those capacities included the ability to spend on the cash account (remember those cheques?) as well as the capital account. But in the main, that burden was carried by the unprecedented mining investment boom.
But as the mining investment slows down, the role of expenditure on the capital account, especially infrastructure projects, is fundamental to the continued strength of the Australian economy.
As the ANZ Bank’s economists said in April:
“Publicly funded infrastructure construction and private-sector spending on non-residential buildings will be key drivers of investment activity and employment over coming years.”
As the chart below shows, while mining investment falls over coming years, other investments are likely to take over some of the slack, if it all proceeds.
As we observe every month in Statistics Count, the housing sector remains relatively buoyant and is likely to soften rather than collapse. It will continue to play a solid role in the economy.
The established pipeline of investment is solidly focused on the South Eastern seaboard, and particularly on Sydney and Melbourne. It is a planes, trains and automobiles thing we might say, and as we observed in the announcements of the 2017 Federal Budget. The second airport at Sydney is the centerpiece and may remain so for the better part of the next decade.
But unlike the infrastructure investments in the mining investment boom, the savior of the national economy this time around will be infrastructure expenditure on the public purse.
Extensive public investment is a good thing. It is part of the strategic firmament upon which national development occurs after all. Nowhere more is that clear than in the massive investment is a good thing. It is part of the strategic firmament upon which national development occurs after all. Nowhere more is that clear than in the massive investment – shown in the chart – in the National Broadband Network. It must be conceded that there are alternative contentions, those that say all investment is the role of the private sector.
But that argument is hollow against the evidence. Real infrastructure serves a national purpose first, one that is not always commercial, but that often has a commercial aspect to it.
Until the apparent peak in 2019, government infrastructure expenditure will lead the way, but after that, the ANZ team expects it will wind down.
As they say, with the pressures on government finances and the reluctance to engage in further debt, the role of the private sector in infrastructure investment might need to become more pronounced in the relatively near future.
