INFRASTRUCTURE BOTTLENECKS AHEAD

Written on the 17 March 2010

INFRASTRUCTURE BOTTLENECKS AHEAD

SOME sectors move faster than others in Australia, but it’s safe to say we find ourselves in an enviable position compared to other developed economies.

Our prudent banking regulation and fiscal position have helped us to weather the storm well, as we seem to be emerging from the recent turmoil at a pace that would likely have been beyond the most optimistic predictions only nine months ago.

The Reserve Bank of Australia (RBA) is forecasting GDP to grow between 3.25 per cent and 5.3 per cent in the next two years and unemployment was at an 11-month low in January, which is about half the levels seen in the US and the European Union. But while Australia is doing well, there are still a number of local issues to be addressed and the fate of the global economy will undoubtedly affect capital markets in Australia. This includes the fate of those stocks listed in Brisbane, with a strong mining focus as well as retail and property exposure. All these sectors face restraints of some form or other at the moment.

Infrastructure bottlenecks and skills shortages largely brought about by continued strong demand for our commodities from emerging economies, in particular China and India, may temper the expected recovery of the Australian economy. Increasing Australia’s productive capacity is one of our biggest challenges and it is comforting to observe that this issue appears to be at the forefront of current political discussions.

Also, given the recent interest rate rises and the threat of further increases, one industry for which the growth outlook is perhaps uncertain is the retail industry. Australian retail sales fell unexpectedly by 0.7 per cent in December for the first time in five months with households drastically reducing their spending at department stores and supermarkets. Further increases in interest rates, together with the likely absence of any further government stimulus, may lead to consumer demand for discretionary products softening somewhat throughout 2010.

The recovery of the Queensland property industry continues to lag behind many other states, particularly when new development numbers and the commercial property sector are considered, which is not surprising given the valuation methodology which underpins the calculation of land taxes and rates, which could increase by 30 per cent with State Government reforms.
Internationally, there remains some risk that developments in the other economies could derail the global economic recovery and impact growth in the Australian economy.

Firstly, there are concerns about the large amount of debt held by several European nations like Greece, Portugal, Spain, Italy and Ireland. Secondly, China faces a significant challenge reigning in a stimulus policy of unprecedented proportions, which could mean it’s in serious danger of overheating.

But at this early stage of the Australian economy’s recovery, our mining and mining services industries appear well positioned to experience growth over the coming years as commodity prices start to rebound. Our agricultural industry also appears set to experience significant growth in future years as it emerges from one of the most crippling droughts in Australia’s history.

The prices of so called ‘soft’ commodities are rising and we are beginning to see increased levels of activity in this area as a result, so all other factors constant, this could well be one of the industries to look out for in the future.


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