Despite economic challenges business investment remains strong

The opening statement to the economics legislation committee from the Secretary to the Treasury, Steven Kennedy, underscored “solid growth” in business investment across the country, despite other economic considerations struggling.

According to the statement, business investment grew by 6.6 per cent in 2023–24. The reasoning behind this surge reportedly “reflects the need for businesses to grow the capital stock in line with strong growth in labour input.”

Some of the top drivers of these figures were machinery and equipment investment, non‑dwelling construction activity, and computer software investment.

Despite the positive trends in the business space, the overall economy lacked, with recorded “subdued growth” of 1.4 per cent in 2023–24, below the forecast in the 2024–25 budget.

What caused this weak growth? Household consumption was a major player, with 2023–24 seeing a 1.1 per cent increase. This was the lowest growth (excluding the pandemic and GFC) in three decades.

Dwelling investment also played a role, falling by 1.5 per cent. Increased construction costs placed a strain on activity. However, thankfully for consumers, the growth in the prices of new dwelling purchases by owner-occupiers has fallen from an annual rate of over 20 per cent to now around 5 per cent.

Western Australia was a standout for this subdued growth. The Treasury said that easing construction and material costs will only make things easier for those entering the property market.

We may be on the cusp of change as the inflation figures fell within the RBA’s band of 2–3 per cent, currently sitting at 2.8 per cent, with underlying inflation at 3.5 per cent.

“The reduction we have observed in (headline) inflation represents a material reduction in cost‑of‑living pressures for households. Underlying inflation is expected to continue to fall in the period ahead,” said Kennedy.

“As is often the case, changes in government policies have affected the prices of goods and services that households face and hence headline inflation. For example, we estimate that energy bill relief reduced inflation by 0.3 percentage points over the year to the September quarter.

“Australia has had a somewhat similar inflation experience to the rest of the world. Inflation in Australia peaked at 7.8 per cent in the December quarter 2022. However, this was lower and later than most other OECD countries. The IMF recently published its World Economic Outlook, and it is worth putting their inflation forecasts in perspective. Based on these forecasts, the IMF expects that the cumulative increase in prices between 2019 and 2025 in Australia to be similar to that of the US and lower than that of the UK and New Zealand.”

Kennedy understands that policy decisions must be made with caution, as outcomes are seldom achieved without trade-off. With Australia’s inflation seeing a drop and the RBA poised to make a rate cut early next year, we may finally be seeing the light at the end of the tunnel.

Related: Stubborn inflation keeps RBA firm on cash rate

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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