Australian state governments must maintain a high level of infrastructure spending to offset the “inevitable” end to the residential construction boom in 2017, says IFM Investors.
In his October 2016 Economic Update, IFM Investors chief economist Alex Joiner said that “at first glance” the public sector made a very strong contribution to June quarter GDP.
But on closer inspection, the 27 per cent quarter-on-quarter spike in infrastructure investment was largely down to an asset transfer and “won't be sustained", he said.
“The implication from state government budgets is that this [infrastructure] spending will peak in late 2017 into 2018,” Mr Joiner said.
“We therefore would encourage all levels of government to facilitate further infrastructure spending beyond this point to arrest any potential decline.”
The complete lack of private sector investment makes the need for public spending even more urgent, Mr Joiner said.
“This is a key factor, along with below average levels of household spending growth, keeping domestic demand growth (excluding resources investment) running consistently below trend,” he said.
“Furthermore, the current upswing in the residential construction sector will inevitability fade, potentially in late 2017.
“This will impart downward pressure on economic activity and likely involve job losses that ideally would be offset with further infrastructure investment.”