Investment to grow despite many hurdles

·2-min read

Business investment is expected to pick-up as firms play catch-up after disruptions caused by the COVID-19 pandemic, although there are still many risks that may hamper the outlook.

Rising interest rates are likely to weigh on investment, particularly for those business already in debt, Deloitte Access Economics says in its latest quarterly investment monitor.

It also believes public sector infrastructure has also peaked, while commodity prices are forecast to fall in 2022 and pandemic tax breaks are due to end in 2023.

Yet despite this list of concerns, Deloitte Access Economics expects business investment to account for one third of economic growth over the next five years.

"The key positive is that the economy have recovered faster than previously expected," partner Stephen Smith said.

"This has boosted business profits and reduced spare capacity - that's a combination that typically leads to an increase in business investment."

He said Russia's invasion of Ukraine has led to windfall gains for Australian producers of iron ore, coal, gas and base metals.

While this is encouraging investment by these businesses, there is uncertainty around how long prices will remain elevated and there are added risks for Australia's more carbon-intensive mining industries.

"That suggests that today's record prices may not be followed by a matching increase in investment," Mr Smith said.

However, the war in Ukraine has also prompted a broader rethink of energy security, particularly in Europe, and one pathway to bolstering this security is through renewables.

"This strengthens the business case for new investment in Australia's critical minerals and metals industry," Mr Smith said.

The Deloitte Access Economics' report says the total value of investment projects in the March quarter stood at $861.7 billion - a $15.3 billion or 1.8 per cent increase compared to the previous quarter.

The value of definite projects - those under construction or committed - increased by $3.7 billion or 0.9 per cent in the quarter to $407 billion, the highest level since the end of the gas construction boom in late 2016.

The value of planned projects - those under consideration or possible - rose by $11.6 billion or 2.6 per cent to $454.7 billion, which includes the new spending that was in the 2022/23 federal budget released in March.

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