Business investment poised to grow

  • By Zilla Efrat

Despite a long list of concerns, Deloitte Access Economics expects business investment to grow in 2022 before accelerating in 2023 and 2024, adding almost two percentage points to GDP over this period.

The latest edition of Deloitte Access Economics’ quarterly Investment Monitor shows that business investment returned to pre-COVID-19 levels ahead of the Omicron outbreak.

“Investment has been supported by government investment incentives, record infrastructure spending by state governments, the strength of the share market, as well as the fall in interest rates that accompanied the outbreak of COVID-19,” says Deloitte Access Economics partner and report lead author, Stephen Smith.

“Yet there are still a number of concerns for the outlook in 2022.

“Contractors are facing some significant challenges. Delta lockdowns in eastern Australia created a backlog of work, tight borders and a highly competitive global market are making it difficult to get workers from overseas, a large pipeline of residential construction activity in Australia creates additional competition for workers, and global supply shortages are leading to large increases in the cost of building materials such as timber and steel.”

Smith says these factors, along with Omicron-related risks, make it harder than ever for contractors to deliver projects on time and on budget.

“Tax incentives – such as accelerated depreciation – tend to change the timing of investment spending rather than add to it overall,” he adds.

“Interest rates are expected to rise. Investment is costly and higher interest rates mean lower levels of investment than would otherwise be the case.

“The slowdown in China’s property construction industry has implications for the future plans of many businesses in Australia, particularly in the mining and energy industries.”

Smith says the pandemic is far from over and the resultant uncertainty will continue to weigh on business decision-makers as they decide the “when” and the “what” of any future expansion plans.

“That suggests that there’s a pandemic ‘tax’ on investment expectations that may be slow to dissipate,” he says.

“There are also a number of longer-term risks. Capital city mobility didn’t return to pre-COVID-19 levels in either 2020 or 2021, and the Omicron outbreak points to this trend continuing in early 2022. That will have implications for transport networks, with likely changes in weekday peak demand and a greater preference for private transport.

“Potentially more important still, the longer that the COVID disruptions continue, the greater the chance that some changes – such as people working from home – will prove permanent, with implications for office demand in particular.”

Smith says public investment is forecast to grow in 2022 before falling in 2023 as the amount of infrastructure investment work in the pipeline reaches a peak.

“The value of publicly funded infrastructure projects under construction is forecast to surpass $310 billion in 2022,” says Smith.

“This is a 50 per cent increase from current levels, and an almost 150 per cent increase from the levels seen during the trough in 2015. The rapid growth is almost entirely down to the transport industry, with the value of transport projects set to surpass one quarter of a trillion dollars over the coming years, up from a low of less than $50 billion in 2014.”

The database for the December edition of the Investment Monitor contains details of 1,393 Australian investment projects valued at $50 million or more. The total recorded value of projects in the database is $846.4 billion. This represents a 6.7 per cent increase from the previous quarter.