Although business investment is likely to pick up in coming years, the recovery will be slower than previously expected, partly due to slower economic growth and a softening of investment conditions outside of the mining sector.

That’s according to 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.

“Although mining profits grew by more than one quarter in 2018, profits in other sectors fell for the first time since 2011,” said Smith. “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.”

“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,” said Smith.

Supportive backdrop

According to the report, there are a number of positives that will see investment eventually lift. These include low interest rates, as well as readily available credit for large businesses (although loan availability is constrained for small businesses, it’s large businesses that drive capital expenditure).

In addition, the record infrastructure spend by governments – especially in New South Wales and Victoria – has both direct and indirect benefits across the business investment landscape.

“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.”

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