Business investment set to slowly recover

15 May 2019

Business investment is set to accelerate in the years ahead, but – partly due to slower economic growth and a softening of investment conditions in the non-mining sector – the recovery will be slower than previously expected.

Releasing the latest edition of Deloitte Access Economics’ quarterly Investment Monitor, Deloitte Access Economics partner and report lead author, Stephen Smith, said: “The pace of growth in Australia’s economy has slowed in recent quarters. That matters for investment because businesses are more willing to invest in increasing their production capacity if demand is strong. This is already showing up in easing measures of capacity utilisation, especially in the wholesale and retail sectors, and weaker business confidence.

“Although mining profits grew by more than one quarter in 2018, profits in other sectors fell for the first time since 2011. The strength in the mining sector compared to the non-mining sector is likely to filter through to investment. The latest capital expenditure survey by the Australian Bureau of Statistics shows that although investment intentions have grown, the improvement is being solely driven by the mining sector.”

According to the report, there are still a number of positives that will see investment eventually lift:

“So the backdrop for investment remains supportive,” Smith said. “An example of this is office construction, where robust gains in white-collar employment are encouraging commercial developments of new office space – particularly in Melbourne.

“Deloitte Access Economics is forecasting private business investment to remain relatively flat in 2019, before recovering to grow at a faster rate than overall real GDP in 2020 and 2021.”

The shift in project activity from the nation’s north and west towards the south and east is continuing. New South Wales and Victoria now account for half of all definite project investment (those projects under construction or committed), up from a low of around 15% in late 2012. The two states also account for close to one third of all planned project activity, the highest share seen since Investment Monitor began keeping records in March 2001. This is partly due to the end of construction at major mining projects in Western Australia, Queensland and the Northern Territory, but it is also due to the record amount being invested in infrastructure assets in New South Wales and Victoria – primarily in the transport sector.

Project activity in the transport sector is concentrated in a number of large road and rail developments, many of which are located in Sydney and Melbourne. Major project activity is expected to reach a peak of around $19 billion in 2021.

Key figures for the March quarter include:

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Source:  Deloitte - www2.deloitte.com

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