Big fall in major project spending: ANZ

25/02/2015 - 15:16

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Capital spending on major mining, energy and infrastructure projects in Australia is set to drop more than 60 per cent over the next three years, according to analysis by ANZ Banking Group.

Big fall in major project spending: ANZ
Infrastructure projects like Elizabeth Quay will partly offset the fall in new resource projects.

Capital spending on major mining, energy and infrastructure projects in Australia is set to drop more than 60 per cent over the next three years, according to analysis by ANZ Banking Group.

ANZ’s Australia Major Project Update 2015 report estimated a $56 billion drop in aggregate spending in major projects, worth $100 million or more, from last year, to $32 billion.

“Mining states are expected to be hit hardest as large-scale projects wind down and sharply lower commodity prices reduce the likelihood of new capital spending or project expansions,” the banking group said.

As a result of the decline in new investment, ANZ estimates that cumulative export earnings from iron ore, coal and LNG will be roughly $110 billion lower by 2018 than projected a year ago.

The report forecast new LNG capital expenditure (excluding operatinal spending) will drop from $55 billion in 2013 to less than $5 billion in 2017.

New spending on mining projects is forecast to be less than $5 billion per year.

ANZ believes public-backed infrastructure spending (roads, rail, NBN) will only partly offset the drop in resource sector projects.

Infrastructure spending is tipped to remain subdued in the near-term, at around $4 billion, before increasing in 2017 to around $12 billion.

“Despite the positive global investment climate for these projects, recent changes of government in Victoria and Queensland are likely to reduce, or at least delay, infrastructure spending in those states,” it said.

“There is also uncertainty around local privatisation programs.”

Another growth area nationally is hospital spending, though that sector will decline in WA following completion of Fiona Stanley Hospital, Perth Children's Hospital, the Midnand Health Campus and other smaller projects.

ANZ chief economist Warren Hogan said while it was widely known that capital expenditure in the resources industry would fall sharply in the coming years as major projects transition into production, it was less-well understood that the expected strengthening in public infrastructure investment would only provide a modest offset.

“For this reason private non-mining business investment must strengthen to broaden the recovery in the non-mining parts of the economy beyond residential construction – the near term outlook, however, remains subdued,” Mr Hogan said.

 

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