Monday, 13 January 2014

Construction and Infrastructure is key to recovery and lookig healthy



By that I mean construction and infrastructure investment - like that in Construction and in infrastructure such as oil and gas, rail etc.

Why does this matter more than say retail or other business spend? Well it matters because of the long-term nature of the underlying cash investments. if you build a railway, or invest in North Sea oil exploration and production, these investments, these types of activity take a long time. Decades even, the business plans are drawn up conservatively, lots of people are hired on permanent contracts as the timerline for delivery is so long. The key risks end up being regulatory/governmental tax intervention, rather than business. After all, the business has to stack up to make such an investment.

Even the construction of a building, say a new city centre office block, is a 5 year project from site acquisition to final leasing to the tenants. That these types of project take a long time means that the commencement of so many of these types of project last year and continuing into this year is a great underlying sign for the economy. Banks, lawyers and accountants, as well as retailers, live quarter to quarter. Indeed, business services, which makes up such a large apart of the economy, is very whimsical in its nature. One bad quarter and investment for the next year is scaled back.

I am with my co-writer, Nick Drew, who argued last week that most Government investment is Keynesian in nature and not necessarily reflective of what outputs the Country really needs. Nonetheless, underlying growth is boosted by longer term investment. I doubt very much the UK is going to have a bonanza year this year as the services expansion tails off - at least this wider business investment will mean we have higher levels of activity for a few years yet.

7 comments:

James Higham said...

Well, we know that but when will the govt know it?

ivan said...

Now all they have to do is get on with drilling and fracking for shale gas - assuming the green Luddites in the limp dims allow them before the lights go out.

Blue Eyes said...

We need public infrastructure and we need lots of it. Roads, tube lines, dare I say it government-led broadband rollouts.

The problem in the UK is that we have been very very bad at infrastructure planning, except for that golden period when the transport minister owned a construction company.

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