With the passing of the large mining-related falls in business investment, the focus now turns to how much of an investment recovery will occur.
According to Deloitte Access Economics’ latest quarterly Investment Monitor, private business investment is expected to have grown by almost 5% in 2017-18, driven by an improvement in engineering activity and strong growth in commercial construction.
Deloitte Access Economics partner and lead Investment Monitor author Stephen Smith said a number of factors point to further gains in business investment.
“Robust growth in the global and domestic economy is supporting demand for the goods and services that businesses sell, leading to higher profits, improved business confidence and tightening capacity utilisation,” he said.
“And given that interest rates remain low and investment has been weak for a number of years, the case for businesses to invest in new capacity is increasingly compelling.
“Yet a degree of caution is still required. Firstly, while Australia’s outlook is solid, it isn’t great. As China’s economy slowed, cuts to interest rates pushed house prices and retail sales above where they would otherwise have gone. That reduced the severity of the downturn, but will also reduce the size of the present upswing.
“Even though mining capital expenditure has dropped in recent years, to be just half the size of non-mining expenditure, the mining sector still plays a dominant role in Australian investment cycles. And despite the fact that the backdrop for the sector has improved of late, miners are expected to be more cautious about future investment decisions.
“Many businesses still keenly remember the impact of the 2008 financial crisis, political volatility is now seen as the norm rather than the exception, and technological advances – while recognised as a positive in general – are also seen as having the potential to negatively disrupt individual businesses.
“In combination, these factors are expected to result in only a modest upswing in business investment spending over the next several years.”