Posted: 09 Feb. 2021 5 min. read

The investment outlook improves

Business investment was one of the hardest hit parts of the Australian economy in 2020. It’s a tough call to sign off on expansion amid significant restrictions and uncertainty. The effects will linger over 2021 and 2022, but the latest Deloitte Access Economics Investment Monitor shows that, encouragingly, the investment outlook is beginning to improve.

A number of things are going right: local COVID-19 numbers are small, the vaccine rollout is expected to start soon, business confidence has reached its highest level since 2018, the Reserve Bank has indicated it will keep interest rates low for the next three years, and time-limited, generous tax incentives are difficult to ignore.

These factors will help to limit the negatives that are weighing on investment, but will not undo them. Deloitte Access Economics forecasts private business investment to lag behind the national economic recovery in 2021, before accelerating in 2022 and 2023.

However, public sector investment is forecast to grow significantly in 2021. Approximately $50 billion in additional infrastructure funding was announced in recent state and territory budgets, bringing the total pipeline to almost a quarter of a trillion dollars over the next four years.

The pipeline remains dominated by a series of major projects. Transport projects with an estimated individual cost of $1 billion or more account for approximately 60% of total infrastructure project investment. The pipeline is also heavily concentrated in New South Wales and Victoria.

Chart: Major government infrastructure investment projects

Source: Deloitte Access Economics Investment Monitor December 2020
Note: ‘Major projects’ refers to projects with an estimated capital cost of $1 billion or greater. This chart uses project start and end dates, weighted by project status, to estimate the future value of projects under construction. Excludes any new projects that may enter the Investment Monitor database in the future
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Investment in infrastructure ranks highly on the economists’ list of preferred stimulus options. The costs of infrastructure have fallen (interest rates are at record lows) while the benefits have risen (higher spending will help to partly offset the impact from winding back JobKeeper and JobSeeker).

There are some looming challenges though. The public sector funds major projects, but it is usually the private sector that actually delivers them. And following a string of highly publicised losses among contractors, the list of builders willing to bid on major projects has been shrinking. There are also concerns around shortages of key building materials and skilled labour. This all raises the risk of cost blowouts and delays. Careful planning, a less adversarial relationship between governments and contractors, and splitting investment schedules into smaller projects can all help. But the risk remains.

Australia’s economy has rebounded sharply in the latter part of 2020, but it won’t be a sustainable economic recovery until private businesses are once again willing to invest. Fortunately, that looks like it will occur a little earlier than previously expected. 

More about our authors

David Rumbens

David Rumbens

Partner, Deloitte Access Economics

David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis.  David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.

Sheraan Underwood

Sheraan Underwood

Manager, Deloitte Access Economics

Sheraan is a manager in the Macroeconomic Policy and Forecasting team at Deloitte Access Economics. He works across Deloitte Access Economics key publications including Investment Monitor, which provides detailed data on major business and government investment projects in Australia.