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Business investment set to slowly recover

Investment Monitor Q1 2019

30 April 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:

  • Measures of capacity utilisation remain relatively tight (despite the recent worsening)
  • Interest rates are low, and credit is still readily available for large businesses (although loan availability is constrained for small businesses, it’s large businesses that drive capital expenditure)
  • 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.”

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:

  • The value of projects in the database rose by $10.4 billion to $689.5 billion – a 1.5% increase from the previous quarter
  • The value of definite projects (those under construction or committed) increased by $12.0 billion over the quarter, as work commenced on a number of projects in the transport and utilities sectors. That said, the value of definite activity remains around one fifth lower over the year following the earlier completion of large LNG developments
  • The value of planned projects (those under consideration or possible) decreased by $1.6 billion over the quarter. Despite this, planned work has grown by 2.4% over the past year.

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.

Media contact

Simon Rushton

Corporate Affairs & Communications
M: +61 450 530 748
T: +61 2 9322 5562

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