SYDNEY: Australia’s data centre boom risks pushing demand beyond the economy’s supply capacity, fuelling inflation and requiring the Reserve Bank to run higher interest rates, according to James McIntyre at Bloomberg Economics (BE).
The surge in spending could push capital expenditure above 2% of gross domestic product (GDP) in 2026-27, McIntyre, BE economist for Australia, said in a research note.
He said major data centre developments will intensify competition for construction capacity, drawing skilled trades away from renewable energy developments, infrastructure projects and housing.
“As with other investment surges in Australia, the boom is crowding out activity elsewhere, particularly in non-residential construction,” he said.
“Investment in electricity generation, including renewables and transmission, data centres and public infrastructure is placing heavy demands on the rest of the economy.”
The Reserve Bank of Australia is under pressure to resume raising rates when it meets in three weeks’ time following stronger inflation and GDP data.
It has consistently highlighted the need to return the economy to balance, boosting borrowing costs three times between February and May to take the cash rate to 4.35%.
Ivan Colhoun, chief economist at CreditorWatch Pty Ltd, echoed some of BE’s concerns, saying the data centre boom would pressure materials prices, labour demand and wages, “meaning the softening in residential approvals and house prices is not as significant for monetary policy as normal”.
Still, McIntyre pointed out that, in time, there would be a productivity payoff from all the investment.
“Evolving combinations of drones and remotely operated heavy machinery could displace physical roles in Australia’s capital-intensive mining and agricultural sectors,” he said. — Bloomberg
