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driven by transport infrastructure and increasingly energy and
utilities, and these areas are expected to remain the areas with
the most investment opportunities over the forecast period.
How is infrastructure spending divided between
public and private spending?
Private infrastructure spending was the key driver through the
resources boom, and government spending has been flat over
the last few years. This has started to increase now, mainly
driven by the New South Wales and Victorian governments,
both of which have forecast infrastructure expenditure of more
than $70 billion over the next four years. At the same time,
Federal Government infrastructure expenditure has been
largely stable, and while there are a number of high-profile
new national projects, spending declines if you look over the
In terms of the private sector, investment in capital
expenditure is still running below long-term averages, which
is a global trend. Looking at industrial companies’ ratio of
capital expenditure (capex) to sales, it remains below long-term
averages and continues to trend down. Companies do not have
the same confidence levels to invest as they did in the early
2000s. This is despite the fact that capital is readily available.
Our superannuation capital balance continues to grow, and
unspent capital allocated to infrastructure continues to rise.
The recent reporting season has shown us that the
performance of industrial, transport and utilities companies was
a highlight, relative to telecommunications and finance. Energy
and industrials companies (including transport) saw 5.0 per
cent and 4.4 per cent increases in share prices, respectively,
through the reporting period. Utilities share prices grew 2.1 per
cent, while telecommunications and financials share prices
declined by 10.8 per cent and 3.1 per cent, respectively. One
of the big themes to come out of the reporting season was
that the outlook for capex and infrastructure is very positive.
Commodity companies are also starting to deliver. As noted
earlier, consumer spending is, however, constraining growth at
the retail level.
In mining, there has been an increase in profitability, but
spending on capex has not yet increased; rather, profits are
either being held, or returned to shareholders. The sentiment
for infrastructure and resources-exposed companies has
continued to be very positive over the past year and a half. It
is worth noting that transport infrastructure and utilities have
outperformed the ASX 200 over the past five years.
In terms of the infrastructure outlook, we have drawn out four
key themes that Macquarie believes will drive infrastructure
investment over the medium term. The four themes are:
► energy and renewables
► city building
► government and private sector collaboration.
Energy and renewables
Energy is very topical at the moment, following an increase
in energy prices and the resulting political debate. There is
highlighted political discussion, and there is a lot of coverage
in the media. Fundamentally, Macquarie is seeing a big
investment opportunity in the energy space, resulting from
the retirement of coal-fired generation and cost reductions in
renewable generation, which means that the role of renewables
in the market continues to increase. By 2036, renewables are
estimated to provide 60 per cent of market capacity, with coal
estimated to drop from its current 48 per cent share to 12 per
cent. This means that there is a big investment opportunity
in renewables and supporting infrastructure, such as firming
capacity, storage and additional transmission. There is also
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