Business investment needed for recovery

Colin Brinsden, AAP Economics and Business Correspondent
·2-min read

Australia's economic recovery will need businesses to invest in their future and overcome their fear created by the COVID-19 pandemic, a report warns.

In its latest quarterly investment monitor Deloitte Access Economics expects private business investment to have fallen sharply in 2020.

Deloitte partner Stephen Smith says the pandemic could potentially cause a vicious circle, where scared investors aren't investing, and without investment Australia won't see growth and without growth job creation is at risk.

"It won't really be a recovery until businesses are willing to bet on the future by expanding their productive capacity," he says.

He says the business case to invest will only improve when sales begin to place pressure on production.

"That date will differ from industry to industry and from business to business, but is likely still some way off," Mr Smith says.

But he says government investment is set to reach new heights in the coming years as infrastructure plays a key role in post-COVID stimulus efforts.

Mr Smith says the cost of infrastructure has fallen as governments can now borrow at record low interest rates to fund new investment

At the same time, he believes higher infrastructure spending will help soften the impact on the economy from winding back JobKeeper and JobSeeker.

Overall, investment projects at various stages rose by $20.7 billion during the September quarter to $748.1 billion, a 2.8 per cent increase from the previous quarter, and largely due to new publicly funded infrastructure investment projects.

The value of definite investment projects - those under construction or committed - decreased by $1.5 billion to $246 billion, the lowest level in more than a decade.

However, the value of planned projects - those under consideration or possible - increased by $22.2 billion over the quarter to $503 billion.

Planned work has now reached levels not seen since the height of the mining construction boom in late 2012.

Private business investment is forecast to return to positive growth in 2021 before accelerating in 2022.