From Westpac:
• The ABS quarterly survey “Engineering Construction Activity” provides an update of the infrastructure sector, including details on commencements and the work pipeline. Here we provide an overview of the sector. • Activity: Infrastructure construction work is in the midst of a downturn, from record highs, as the mining boom transitions from the investment stage to the output phase.
• Total real infrastructure activity declined for a sixth consecutive quarter in March, falling by 7.0% to be 20.3% lower than a year ago.
• For private projects, a two year surge in work over 2010 and 2011 gave way to a two year consolidation, followed by a sharp retreat over the past year. The profile is as follows: +29%yr March 2011; +60%yr March 2012; flat yr March 2013; flat yr March 2014; and –23%yr March 2015.
• For public works, a downtrend emerged from early in 2013. Prior to this, work strengthened ahead of the GFC as state governments took on additional debt. This was followed by a three year consolidation in 2009 to 2012. In March 2015, public works was 10% lower than a year ago, notwithstanding a 1% rise in the quarter. The segment currently accounts for 25% of total infrastructure activity.
• Commencements: The softness of commencements is the striking feature of recent updates on the sector.
• For 2014/15, infrastructure commencements are on track to be $50bn. The quarterly profile is: $12.9bn for September; $13.6bn in December; $11.6bn for March quarter; and we have assumed June is a repeat of March.
• If so, commencements in 2014/15 will be 36% below that in 2013/14, which were 34% down on 2012/13. The weakening of commencements in 2013/14 was due to the absence of any additional major gas projects. In 2014/15, weakness was more broadly based.
• Work pipeline: Significant progress has been made in reducing the sizeable work pipeline. The pipeline now stands at $85bn, 26% below a year ago and down from a peak of $169bn in September 2012.
• Prospects are for a significant and prolonged downturn in infrastructure work as the mining investment boom unwinds. Public works will provide a partial offset as state governments boost spending on major transport projects over the next couple of years. That said, the precise scale and timing of the upswing in public projects is uncertain.
• Work done in Q1, at $25bn, would need to fall by a further 55% to be in line with the current level of commencements. That would see infrastructure work back at around 3% of domestic demand, moderating from 6.3% currently and down from a peak in 2012 of 8.6%.
In short, private and public infrastructure both completed and planned are falling fast.
