Electricity, Gas and Water: Cost & Activity Forecasts

In the electricity, gas and water (EGW) sector, the outlook is for subdued cost inflation over the next few years. The inflationary environment in the Australian economy generally is expected to remain weak for a few years, and the EGW sector reflects this. We anticipate relatively weak economic growth in the medium term, resulting in low employment growth and subdued wage increases. A construction downturn is developing, led by residential building, but with non-residential building, renewable energy, telecommunications and, later, public infrastructure, expected to join the general cyclical decline. This will drive a downturn in demand for construction materials and other inputs to construction.

We also anticipate subdued growth in the world economy and global trade volumes, with a number of major risk factors at play, including Brexit, US-China trade tensions, volatility in US politics, Middle East tensions, Hong Kong protests, to name but a few. All of this is likely to dampen commodity prices, at least in the short to medium term. Furthermore, there is reduced scope for further depreciation of the Australian dollar below its current levels, which will also mean lower price increases in Australian dollar terms.