Deloitte: LNG cliff upon us

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From Deloitte:

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The March quarter edition marks the 15-year anniversary of the Investment Monitor publication, arguably the most comprehensive listing of Australian investment projects and an important source of analysis and information for economists, policymakers and stakeholders alike.

The economic outlook for Australia has recently improved somewhat. Growth and employment gains are solid. Commodity prices have rebounded from recent lows, and the US and China are growing at reasonable rates.

Yet key challenges remain. Housing construction is unlikely to spur growth like it has recently, commodity prices are unsustainable at current levels, China still faces considerable challenges in its economic transition, and the decline in mining investment is accelerating.

Engineering construction will continue to be a major drag on business investment. It has contracted for all but one quarter over the past three years and this pattern is expected to continue.

Tourist flows (and associated spending) from China has shown impressive growth and international education continues to shine. This is boosting commercial construction although the recent rise in the $A is putting these gains at risk. That said, the $A is still well below the levels seen during the mining boom.

The fall in mining investment in Queensland is well advanced while Western Australia and the Northern Territory still have some way to go. Both the Commonwealth Budget and a number of State Budgets are under pressure, dampening the prospects of public sector-led revival. In contrast, New South Wales and Victoria are the bright spots in Australia’s investment landscape, and their State Budgets are in better shape.

Overall, total recorded value of projects in the Investment Monitor database is $780.5 billion. This represents a 0.5% increase from the previous quarter but it is 3.9% below the level recorded in March 2015.

The value of definite projects in the database (those under construction or committed) increased by just over $3 billion over the quarter, equivalent to a 0.8% rise. However, this is still 11.7% lower than the year before.

The value of planned projects in the database (those under consideration or possible) rose by 0.1% during the March quarter. This is 4.9% higher than last year – a gain of

$18.7 billion.

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A slightly better quarter in a terrible year that is about turn absolutely abysmal as nearly $200 billion in LNG investment disappears.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.