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Businesses put pandemic in the rearview mirror

Many businesses see the worst of the pandemic as being behind them, according to Deloitte Access Economics partner Stephen Smith.

10 May 2022 

Releasing the latest edition of Deloitte Access Economics’ quarterly Investment Monitor, Deloitte Access Economics partner and report lead author, Stephen Smith, said the good news was that the outlook for business investment was solid. 

“The key positive is that the economy has recovered faster than previously expected. This has boosted business profits and reduced spare capacity. That’s a combination that typically leads to an increase in business investment,” Mr Smith said. 

“Many businesses also now see the worst of the pandemic as being behind them. Most notably, large-scale and long lasting lockdowns are seen as unlikely. 

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"Heavily disrupted supply chains have meant that some businesses weren’t able to invest when they wanted to. But as supplies – eventually – become more plentiful, that will unleash a degree of catch-up spending by businesses. Much of this will flow into machinery and equipment investment, but there is also expected to be a boost to non-residential and engineering construction.”

There are also some industry-specific factors supporting investment. Airlines are purchasing new planes, miners are looking to increase production while commodity prices are elevated, and the record amount of public sector infrastructure investment is generating positives for private sector projects.  

“Yet there are some risks to the outlook,” Mr Smith warned. “Higher borrowing costs for businesses – particularly those already in debt – are likely to weigh on investment, the growth in public infrastructure investment has peaked, commodity prices are forecast to fall in 2022, pandemic-driven tax breaks are set to end in 2023, and there’s elevated uncertainty around the  global geopolitical environment.” 

Despite that long list of concerns, Deloitte Access Economics forecasts growth in business investment to outpace growth in the wider economy from 2022 – accounting for almost one-third of the growth in GDP over the next five years. 

Public investment is forecast to grow in 2022, before falling in 2023 as the amount of infrastructure investment work in the pipeline reaches a peak.

“Russia’s invasion of Ukraine has led to windfall gains for Australian producers of iron ore, coal, gas and base metals,” Mr Smith said. 

“This is encouraging investment in replacement capacity, but there is uncertainty around how long prices will remain elevated and there are added risks for Australia’s more carbon-intensive mining industries.”

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