Business investment in Australia has continued to decline over the past year as economic uncertainty, rising costs, and slowing demand weigh on corporate decision-making, according to a recent Deloitte Access Economics report.
Declining Investment and Economic Pressures
The latest Investment Monitor from Deloitte highlights a sustained downturn in business investment, driven by an increasingly challenging operating environment. Factors such as rising labor and non-labor costs, including energy and insurance, coupled with slowing demand, have put pressure on corporate profits.
According to Sheraan Underwood, associate director at Deloitte Access Economics, heightened uncertainty has historically led to reduced investment.
“The slowdown in the Australian economy has hit business revenues. This has particularly been the case for businesses reliant on discretionary consumer spending such as those in the hospitality and retail trade industries,” Underwood said.
At the same time, operating costs remain elevated. While businesses have managed to pass on some of these increases to consumers, total corporate profits declined in the past year, particularly in the mining sector, while smaller declines were observed elsewhere.
Cautious Approach Amid Uncertainty
Many businesses are prioritizing cost-cutting measures and strengthening their balance sheets, waiting for more stable economic conditions before committing to new investments. The report suggests that construction industry capacity constraints have also played a role in the subdued investment outlook, though these pressures are expected to ease as economic growth picks up.
Uncertainty has been a persistent feature of the Australian economy following the pandemic, with the Economic Policy Uncertainty Index for Australia more than doubling since early 2024. Deloitte notes that prolonged uncertainty can negatively impact household spending and business investment, as both rely on expectations about future economic conditions.
“Uncertainty makes it harder to form a view on the future and tends to weigh on economic activity. This suggests that policymakers seeking stronger economic growth should work to minimize uncertainty. Greater transparency, well-designed institutions, and strong communication can help better guide market expectations,” Underwood said.
Long-Term Investment Opportunities
Despite current challenges, Deloitte identifies several long-term investment drivers that could support future economic growth. The transition to net zero emissions will require significant investment, while advancements in generative AI, software, and data infrastructure are expected to spur capital expenditure in the coming years.
Additionally, while business investment remains sluggish, the value of projects in Deloitte’s Investment Monitor database increased by 15% over the past year, reaching $505 billion. The increase was largely driven by transport and renewable energy projects, which have moved further along the planning stages.
However, the value of planned projects declined by $16.2 billion over the last quarter, reflecting rising risks and ongoing economic uncertainty.
