Deloitte Access Economics Investment Monitor

06 February 2025: The outlook for business investment has deteriorated over the past year. Releasing the latest edition of the quarterly Investment Monitor report, Deloitte Access Economics associate director and lead author, Sheraan Underwood, said: “The slowdown in the Australian economy has hit business revenues. This has particularly been the case for businesses reliant on discretionary consumer spending such as those in the hospitality and retail trade industries.

“At the same time, operating costs continue to increase. Labour costs are above their long-run average and are expected to remain so through 2025, while non-labour costs such as energy and insurance are rising.

“This challenging operating environment of decelerating demand and rising costs is starting to chip away at profits. Many businesses have been able to pass on higher costs to customers. This kept profit margins around pre-pandemic averages. But total business profits fell over the past year, with large falls in the mining industry and smaller falls elsewhere. 

“Businesses are now responding by implementing cost-cutting measures. Against this backdrop, many businesses will find it prudent to shore up their balance sheets and wait for greater certainty around the broader macroeconomic environment before investing.

“Constrained construction industry capacity is contributing to the muted near-term outlook for business investment. Yet these pressures are abating at the same time as growth in the Australian economy is forecast to accelerate.

“The longer-run outlook for business investment is supported by several opportunities. Significant investment will be required as Australia transitions toward net zero emissions, while technology trends are promoting investment in generative AI, software, as well as physical infrastructure such as data centres. These investments, should they be realised, will drive faster rates of productivity growth over time.” 

Project investment climbs over the year

Despite not expanding in recent months, the value of the Investment Monitor database remains approximately 15% higher over the year.

The database now includes a total of $505 billion worth of definite projects (which are defined as those under construction or committed). Definite project investment increased by $81 billion, or 20%, through 2024. Almost all of this was due to projects in the transport and renewable energy industries progressing through the planning stages.

On the other hand, the value of planned projects in the database (those under consideration or possible) decreased by $16.2 billion over the quarter to $601 billion.

Yet the risks to that outlook have risen. As discussed in the macro focus in this edition of Investment Monitor, high levels of uncertainty have been a feature of the Australian economy following the pandemic.

The Economic Policy Uncertainty Index for Australia has more than doubled from the recent low in early 2024 to the current reading in early 2025. This has continued a longer-running trend which has seen the average level of uncertainty increase after key economic disruptions such as the global financial crisis and pandemic.

Uncertainty has a negative effect on economic growth by delaying household spending and business investment. These types of economic decisions are based on expectations about the future. Households typically consider their future income prospects and financial situation before spending, while businesses invest in-line with the anticipated demand for the products and services they provide.

Uncertainty makes it harder to form a view on the future and tends to weigh on economic activity.

A one standard deviation rise in measures of macroeconomic uncertainty – less than the increase observed in Australia over the past year – reduces annualised real output in the coming quarter by up to 2 percentage points. And the impact of macroeconomic uncertainty persists for up to seven quarters after the shock.

This suggests that policymakers seeking stronger economic growth should work to minimise uncertainty. Greater transparency, well designed institutions and strong communication can help to better guide market expectations. Making policy decisions, and their transmission through the economy, more predictable will be an important step in driving stronger investment, faster rates of productivity growth and sustainable growth in the economy over the long term.

The value of projects under construction or committed across Australia¹

Deloitte Access Economics’ Investment Monitor is primarily a source of information for businesses and others about major engineering and commercial construction projects and their promoters. It is also a barometer of structural change in the Australian economy, and of the investment climate – now and in the future.