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Investment outlook strengthens

Investment Monitor September 2017

31 October 2017: The outlook for business investment in Australia is healthier than it’s been for some time, according to the latest edition of Deloitte Access Economics latest Investment Monitor.

Key points include:

  • The overhang of engineering work that commenced construction during the mining boom has finally passed
  • Businesses have spent years improving their balance sheets. So although it is true that Australian household debt remains a concern, the opposite is true of many businesses operating in Australia
  • Company gross operating profits increased by more than one fifth in 2016-17, bringing an end to years of little to no growth. And while much of the increase has been driven by the mining sector, profits have lifted across most other sectors
  • Borrowing costs remain close to historic lows
  • Continued growth in the economy has combined with a long period of weak investment to boost capacity utilisation to its highest level since the financial crisis
  • And lastly, business confidence has lifted substantially.

Releasing the September quarter Deloitte Access Economics Investment Monitor, lead author and Deloitte Access Economics partner Stephen Smith said: “Australia has now gone nine months without any further falls in business investment, the first time this has happened in five years.

“This improvement is occurring at the same time as state and federal governments are spending large amounts of money on transport projects, with additional stamp duty revenues generated during the housing boom and funds from asset recycling are being directed in publicly funded road and rail developments – particularly in New South Wales and Victoria.

“To fully understand the surge in investment, it is useful to cast our eye forward. Activity is expected to continue lifting from the trough observed in 2015, reaching a peak of around $16 billion in 2020. This also excludes new projects that may enter the Investment Monitor database in the coming years.”

Key figures for the September quarter included:

  • The value of projects in the Investment Monitor database rose by $5.1 billion during the September quarter to $749.7 billion – a 0.7% increase from the previous quarter, but still 7.5% below the level recorded a year earlier
  • The value of definite projects (those under construction or committed) increased by $3.1 billion in the September quarter. Despite the recent gain, the value of definite projects has fallen by 17.7% in the past year, due in part to the completion of the APLNG project in late 2016 and the Gorgon LNG project in early 2017
  • The value of planned projects (those under consideration or possible) rose slightly during the September quarter, increasing by around $2 billion. Planned work has also risen in the past year, up 4.1% from September 2016.

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.

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