Risks from infrastructure boom: S&P

Colin Brinsden
(Australian Associated Press)


While the Morrison government has been urged to do more to help lift economic growth, a global credit rating agency has warned infrastructure spending must be well managed, otherwise it risks stretching the construction sector “toward breaking point”.

In a new report on the Australian engineering and construction industry, Standard & Poor’s says a construction boom is on the way for Australia.

“If not managed well, record activity could ripple through the engineering and construction industry in the form of cost overruns, skilled labour shortages, and project delays,” S&P Global Ratings credit analyst Richard Timbs says.

Standard & Poor’s raised the alarm as the federal government embarks on a massive $100 billion infrastructure program across the country under its “congestion busting” slogan.

“We are committed to every single one of the commitments that we made at the election,” Urban Infrastructure Minister Alan Tudge told parliament on Wednesday.

The Reserve Bank has urged the government for further fiscal support to help lift a sluggish economy alongside its own recent interest rate cuts.

“The call for ‘shovel ready’ projects that can be rolled out relatively quickly and easily requires a realistic assessment of the capacity to deliver this new build,” Mr Timbs says.

“Delays, cost blowouts or major problems in any individual project have the potential to create flow-on effects to other projects. The construction chain is likely to become stretched toward breaking point.”

However, there is little sign of skill shortages at this stage.

New government figures showed demand for skilled workers has dropped for six consecutive months with online job advertisements now down 6.7 per cent over the year, the biggest annual decline since November 2013.

Job ads for skilled labourers are down 14.9 per cent over the past 12 months.

The Reserve Bank cut the cash rate in June and July to a record low one per cent in attempt to lift inflation and reduce unemployment to below five per cent.

Central bank governor Philip Lowe has also urged the government to loosen its budget purse strings, saying monetary policy can’t lift the economy on its own.

The International Monetary Fund in an update of its April World Economic Outlook noted Australia is among a number of central banks that have signalled a “dovish shift ” in policy stance.

“Investors now anticipate more significant policy easing from central banks, including in the United States,” it said while further downgrading its global growth outlook.

“This supportive environment has helped markets regain their poise.”

Indeed, the Australian stock market on Wednesday hit its highest level since before the 2008-2009 global finance crisis.

Westpac chief economist Bill Evans has revised his interest rate forecasts, saying the path of the unemployment rate will be “sufficiently contrary” to the Reserve Bank’s plan.

He now expects a cut in the cash rate to 0.75 per cent in October rather than November and is now predicting a further reduction to 0.5 per cent in February next year..


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