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Long Term Forecast predicts build-up to boom later this decade
The Australian economy is on the threshold of a major cyclical upswing.
Growth will pick up speed over the next two years and build into a boom later this decade, driven by rolling investment cycles, says leading economic forecaster and industry analyst, BIS Shrapnel. BIS Shrapnel’s Long Term Forecasts, February 2010 update reports that the economy currently has enough spare capacity and slack in the labour markets to cater for the initial phase of the upswing without exciting either demand or costside pressures. However, the forecaster warns that problems will occur in three to four years’ time when all the major construction cycles synchronise and infl ationary pressures re-emerge, leading to higher interest rates. BIS Shrapnel was one of the few forecasters who, in the fi rst six months of last year, consistently predicted that Australia would not suffer a recession. “We are now well and truly into recovery from what turned out to be a modest downturn – and not a recession as other forecasters predicted at this time last year,” says BIS Shrapnel senior economist Richard Robinson. “But it’s now time to look forward, not backward. We’re into a rebuild phase, rather than a rebound.
“Two years is a long time in investment markets. I know the Global Financial Crisis (GFC) is still front of mind, but it won’t take long before we forget,” he adds. “Remember the ‘disastrous’ sharemarket crash of October 1987, which was quickly followed by the property boom of 1989, which preceded the recession ‘we had to have’. The build up this time will be slower, but it’s the current caution in risk averse debt and equity markets that is setting us up for the stock and capacity shortages that will underwrite the next boom later this decade.”
Initially, housing upswing to become the key driver of growth
“Investment, particularly the construction side of it, is the primary driver of growth in the economy. The next phase of investment will underwrite growth in the economy, but the timing and logic of each construction cycle is different, with varying knock-on effects to different sectors and across the states,” says Robinson.
Currently public sector investment is the strongest of the investment sectors, offsetting further declines in business investment over 2010, but activity will peak this year. The schools program has probably already peaked, health-related construction is still increasing, while the social housing program is behind schedule. The infrastructure works under the ‘nation building’ program will ramp up this year, but this will only partially replace a number of large state-funded projects fi nishing soon. After 2010, BIS Shrapnel forecasts that public investment will decline as the federal and state governments attempt to rein in defi cits, but the real cuts to government expenditure won’t occur until after the federal election due later this year.
Long Term Forecast predicts boom
“From 2010, housing construction will take over from waning public spending as the key driver of growth. Initially spurred on by a combination of fi rst home owner/ builder grants and low interest rates, this upswing will gather momentum into a boom by 2012. Despite lingering affordability problems, healthy consumer confi dence, high rents, a chronic undersupply and rising immigration will continue to boost fi rst home owner, investor and upgrader demand. But the question is: how long will the housing boom continue in the face of rising interest rates?” asks Robinson.
Business investment booming by 2012/13, but we still need more public infrastructure
Next year, BIS Shrapnel expects the next round of mining projects to get underway, with the rebound in commodity prices and a rosier outlook for the global economy providing the impetus. Plant and equipment investment should also pick up later this year, as businesses, increasingly confi dent about the outlook and able to access fi nance, take advantage of the high Australian dollar to buy ‘cheap’ imported equipment. Then, sector-by-sector, private nonresidential building and infrastructure construction will increase as equity and debt fi nance recover alongside leasing markets. Indeed, there may be some upside to both business equipment and construction capital expenditure in 2010/11, particularly if fi nance becomes available and a number of projects – which were in an advanced state of pre-construction prior to the GFC – are fasttracked. By 2012/13 BIS Shrapnel expects overall business investment and housing investment to be booming, partially offset by further steep declines in public investment. “We have an issue with the expected declines in public investment,” says Robinson. “Although public investment probably needs to ease back to make room for private sector spending, we still need to build a lot more infrastructure. The cutbacks to infrastructure and education spending over the decade to the mid-2000s caused severe bottlenecks, capacity constraints and lowered productivity growth. We fear that the really worthwhile public infrastructure – that is, the capital works that underwrite longrun productivity and the economy’s growth potential – will again be cut now, ultimately realising the same problems that occurred pre-GFC. With this likely to happen, then the government’s two per cent productivity target just looks like a vain hope.”
Consumer spending slower to ramp up, and no tax cuts means only moderate growth
In the near term, consumer spending will be constrained by slow growth in household disposable income, due to less full-time work, weaker growth in wages, dismal profi ts and dividends, a lack of tax cuts this year and higher interest rates pushing up mortgage repayments. Consumer confi dence is high, but households still remain cautious about increasing personal debt. But as the recovery builds, employees will increasingly switch back to full-time work, wages growth will accelerate and households will again start to use credit to fuel spending. Nevertheless, BIS Shrapnel says Australia won’t see retail spending growth return to the pre-GFC levels. Tax cuts will be off the agenda until the budget returns to surplus, and this will tend to moderate household spending for a few years, according to the forecaster.
Long Term Forecast predicts boom
But the higher dollar is damaging tradeables sectors and overall GDP
“It’s not all good news,” warns Robinson. “The high Australian dollar is damaging the competitiveness and viability of domestically produced tradeables industries, particularly manufacturing, tourism and other tradeable services. This not only acts as a constraint on those exports, but more signifi cantly sucks in more imports. With import volumes forecast to outpace stronger export volumes in the medium term, there will be a negative external contribution to GDP. This will act to keep GDP below four per cent in 2011/12 and 2012/13, despite booming domestic demand.” On the other hand, the mining sector and many of the non-tradeable sectors such as retailing, wholesale trade, transport, health and fi nancial and professional services, are already starting to strengthen and have good prospects over the medium term.
Infl ation not a problem now, but will be later, and that means further rate rises
The strengthening in total investment, exports and the overall economy is expected to lead to a marked strengthening in employment and consumer spending from 2011/12. With the economy in fullswing, BIS expects capacity constraints and skilled labour shortages to emerge, eventually fuelling infl ationary pressure. The 2008/09 downturn led to a sharp drop in capacity utilisation, excess production capacity and considerable slack in labour markets as employees switched from full-time to part-time. In the initial stages of the upswing, much of the increase in the output of goods and services will come from higher utilisation of spare production capacity and currently underutilised labour. “This will be the golden age – rising capacity utilisation will realise a cyclical increase in productivity, lower unit costs, lower infl ation and higher profi ts and real wages,” says Robinson. “However, because the Australian economy entered the downturn with little excess capacity and then only experienced a shallow downturn, it will take less time for capacity constraints and infl ationary pressures to re-emerge,” the author says. “We will then see the Reserve Bank hike rates from neutral to contractionary, meaning a cash rate over six per cent and the housing variable toward nine per cent before the next episode is over.” (source: BIS Shrapnel)
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BRIFEN WIRE ROPE SAFETY FENCE UP TO THE CHALLENGE
(This article courtesy Anthony Schmidt of EPC, originally appeared in ‘Highway Engineering in Australia’)
Building on its success throughout Australia and internationally, Brifen’s high performance TL4 Wire Rope Safety Fence (WRSF) continues to go from strength to strength, following a number of major fence installations along the newly upgraded Bruce Highway at Caboolture north of Brisbane. Incorporating 40 new verge and median fences, totalling some 29,000 metres in length, the new Bruce Highway fences represent the latest chapter in Brifen’s remarkable Australian success story.
Interestingly, while the majority of safety barrier installations tend to focus on one primary safety issue – such as protecting vehicles from a steep batter verge, preventing collisions with objects near the carriageway, preventing ‘run off road’ incidents, or preventing median crossover incidents –the safety barrier challenge along the newly upgraded Bruce Highway at Caboolture must surely be considered as ‘…one with the lot’.
Together with the challenge of steep non-transversable batters (with slopes of up to 1V:3H) along the outside edge of sections of both carriageways, the Bruce Highway design also incorporates a deep ‘Vshaped’ median with batter slopes of up to 1V:3H for drainage requirements. In addition, the fact that the major project section between Uhlmann Road and Caboolture involves widening the highway from four to six lanes in a transport corridor with a limited width meant that in several sections, the large concrete noise abatement walls had to be constructed in close proximity to the carriageway. As such, the design also called for the installation of protective barrier fencing to prevent vehicular impacts with the concrete noise abatement walls along both the north- and southbound carriageways.
The Bruce Highway upgrade projects represent the final stages of the Federal Government’s $362 million commitment to upgrade the highway from four to six lanes from the Gateway Bridge through to Caboolture, some 40 kilometres north of Brisbane. The works at Caboolture incorporate two separate contracts; the $8.5 million Boundary Road to Uhlmann Road contract – which was awarded to CMC –and the $183 million Uhlmann Road to Caboolture section, which was awarded to Leighton Contractors.
Stretching some 9.8 kilometres, the Boundary Road to Uhlmann Road contract section incorporated widening the median shoulder on both the north- and south-bound lanes of the existing 6-lane highway, together with the installation of 18 Brifen TL4 WRSF sections. The larger Uhlmann Road to Caboolture contract section incorporated an upgrade of the existing 4-lane highway to a motorway standard 6-lane highway, including: upgrades to bridges, interchanges and improvements to bicycle and pedestrian infrastructure, together with the installation of noise abatement walls and a total of 22 new Brifen TL4 WRSF sections along the verge and median of both carriageways.
Needless to say, when it came to selecting an appropriate safety barrier system for the Bruce Highway upgrade projects, engineers and designers not only focused on ‘containment capabilities’ and performance in sloping batter installations, they also placed a significant emphasis on the amount of fence deflection during an impact. Indeed, for the fences that were to be constructed adjacent to the sound walls, engineers specified a maximum fence deflection of 2
