The latest edition of the Deloitte Access Economics Investment Monitor has reflected on Australia’s marked fall in consumer and business confidence as of late, which has seen businesses respond by retaining profits rather than investing in new opportunities.
Partner and lead author of the report, Stephen Smith, has outlined that while private business investment is forecast to grow through the course of 2020, “the pace of those gains is now set to be more modest than previously expected”, thanks to global uncertainty and domestic confidence levels.
But, there’s optimism ahead, with Mr Smith forecasting private business investment growth at a rate faster than overall real GDP from 2021.
This is thanks to a project investment concentration currently being seen across NSW and Victoria.
The two states are accounting for “almost two-thirds of all definite project investment – the largest share since Investment Monitor began keeping records in March 2001”, he flagged.
“More than one-third of all planned work is located in New South Wales and Victoria, up from a low of less than 20 per cent in late 2014,” the partner continued.
According to Mr Smith, the shift in activity “has been driven by the end of construction at major gas developments in Australia’s north and west, as well as record infrastructure spending by governments”.
Despite these gains, the author did consider the potential impact of “hurdle rates” now and into the future.
Hurdle rates are “the minimum annual return an investor demands before proceeding with a project”.
Mr Smith noted recent calls to lower hurdle rates “to ensure Australian businesses do not miss out on investment opportunities” but did flag that it remains unclear as to whether maintaining hurdle rates at previous levels is constraining Australian investment.
“In Deloitte Access Economics’ view, if hurdle rates are having an impact on investment, their significance is small relative to other factors such as the more moderate pace of economic growth, tighter regulation in some sectors, and a reduced appetite for risk,” he commented.
