Australia’s slowing economic growth means business investment will increase more slowly than previously expected, according to a new report.
Economist predictions the Reserve Bank will cut the cash rate at least once this year in response to slowing GDP growth grew louder last week when inflation was shown to have evaporated completely in the March quarter.
Deloitte Access Economics’ quarterly Investment Monitor, published on Tuesday, suggested the slowdown also has implications for investment.
“The pace of growth in Australia’s economy has slowed in recent quarters. That matters for investment because businesses are more willing to invest in increasing their production capacity if demand is strong,” Deloitte Access Economics partner and report lead author Stephen Smith said.
“This is already showing up in easing measures of capacity utilisation, especially in the wholesale and retail sectors, and weaker business confidence.”
The report forecasts private business investment to remain relatively flat in 2019, before growing at a faster rate than overall real GDP in 2020 and 2021.
Mr Smith pointed out that, while profits in the resurgent mining sector grew by more than a quarter in 2018, profits elsewhere fell for the first time since 2011.
“The strength in the mining sector compared to the non-mining sector is likely to filter through to investment,” Mr Smith said.
“The latest capital expenditure survey by the Australian Bureau of Statistics shows that although investment intentions have grown, the improvement is being solely driven by the mining sector.”
The economy grew by just 2.3 per cent in 2018, according to the ABS.
But low interest rates and easy credit for large businesses are still likely to drive capital expenditure, while record government infrastructure spend will also have a positive impact.
“The backdrop for investment remains supportive,” Smith said.