Australian business investment is flat as the housing boom ends

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  • Business investment in Australia is relatively flat, according to the quarterly Investment Monitor by Deloitte Access Economics.
  • The value of projects fell by $6.4 billion to $706 billion, a 0.9% drop from the previous quarter and a nine-year low.
  • Deloitte says part of the problem is the slowly deflating housing boom.

Business investment in Australia is flat as the end of the housing boom takes momentum out of spending.

Analysis in the quarterly Investment monitor by Deloitte Access Economics shows spending in the services sector growing but not in mining or manufacturing.

Stephen Smith, Deloitte Access Economics partner, says part of the problem is the slowly deflating housing boom is taking momentum out of spending in certain sectors.

The value of the database used by Deloitte to calculate the investment monitor is at a nine-year low.

In the September quarter, the value of projects fell by $6.4 billion to $706.0 billion, a 0.9% decrease from the previous quarter.

The value of definite projects (those under construction or committed) fell by $2.5 billion over the quarter. The completion of a number of large LNG projects in previous quarters has seen the value of definite project activity fall by $71.0 billion over the year, a 20% drop.

The value of planned projects (those under consideration or possible) fell by $3.9 billion over the quarter. Despite this, planned work has grown by 6.9% over the past year.

“The drought has limited investment from farmers and businesses involved in the agricultural supply chain along the east coast,” Smith, the author of the investment monitor, says.

“And despite the improved backdrop for the mining sector, investment decisions are likely to be constrained by moderating Chinese demand as well as the higher global supply of key export commodities.

“It’s also worth noting that the recent leadership change in Canberra is unlikely to provide a systemic issue for future business investment.

“Uncertainty can undoubtedly be corrosive, but the coming upswing in business investment is being supported by positives such as higher profits, low interest rates, robust economic growth and tightening capacity utilisation.”

However, there is a question mark over the timing of the current recovery in business investment.

Deloitte Access Economics is expecting conditions to remain relatively subdued in 2018-19 before gathering momentum from 2019-20.

But spending on infrastructure in Australia continues to rise.

A total of $324 million in infrastructure projects is currently listed, an increase of almost $50 billion over the past two years.

The largest driver has been road and rail investment, which now accounts for $205 billion of total activity.

Much of this work relates to government-funded urban transport projects in the south-eastern states, says Smith.

“There has also been significant growth in private sector investment in renewable energy generation,” he says.

“But uncertainty around energy policy settings means greater risk for investors. With this in mind it is possible that Australia ends up with less investment in new generation than is needed over the coming years.

“Following the end of the mining construction boom, spending on infrastructure has become the key driver of investment activity.

“In fact, investment in infrastructure now accounts for almost half of the total value of our Investment Monitor database, up from one third just two years ago.”

The database for this edition of Investment Monitor contains details of 1,300 Australian investment projects valued at $20 million or more.

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