Infrastructure Construction Key to Economic Recovery: Moody’s

The rapid progression of large, shovel-ready, infrastructure projects could lead to new investment by the private sector, Moody’s Investors Service says.

While spending on infrastructure construction is important to state government plans, Moody’s says a “coordinated approach with the private sector is likely”, given that the states are already facing rising debt and record infrastructure spending pipelines.

“This will lead to new investments, particularly in the toll roads sector, as alternate funding sources are pursued by governments to boost the construction pipeline and keep the economy moving,” Moody’s vice president John Manning said.

Manning says that future greenfield toll road opportunities are expected to be “increasingly complex”, driven by the need to manage environmental, social and governance (ESG) risks.

To date, major projects include the fast-tracking of hospital upgrades, and investment in road and rail infrastructure maintenance.

And with a strong pipeline of major road infrastructure projects, Moody’s notes asset enhancement opportunities for concessionaires of existing toll roads, involving the M7 widening and the M7-M12 connection in Sydney and the widening of Brisbane's Gateway Motorway and Logan Motorway.

But as employees and employers embrace flexible work arrangements and savings from reduced office space, Moody’s views this as a risk to traffic recovery.

Manning says traffic volume in 2021 will be driven by two factors, first, the containment of widespread coronavirus outbreaks. Secondly, the rate of Australia’s economic recovery.

“A widespread coronavirus outbreak resulting in a new set of confinement measures would lead to a second sharp, and potentially longer, decline in traffic,” he said.

“We view this risk as unlikely given that governments are focusing on identifying and rapidly containing outbreaks at a local level to minimise disruption.”

“Government stimulus will have an important role in Australia’s economic recovery.”

As the country enters its first recession in 29 years, treasurer Josh Frydenberg called for superannuation funds to invest in major national projects, such as infrastructure development.

Frydenberg told the Australian Financial Review that superannuation was a “massive pool in savings that should be harnessed more for domestic investment”.

Separately, Moody’s Investor Service said that the pandemic would bring a “new dimension of social risk to the construction industry”, likely to increase a project's complexity, extend project delivery timelines and, ultimately increase a project's cost.

“Moreover, social movement restrictions and border controls are likely to impact the availability of relevant personnel, given the importance of migration to Australia’s construction industry.”

Related: NSW Approves $2.6bn Mamre Road Precinct