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Business Investment Desperately Needs a Spark

Business Investment Desperately Needs a Spark

(16 March 2021 – Australia) Most small business owners continue to delay investment in new or replacement plant, equipment (P&E) and machinery due to a lack of confidence, instead opting to pile up business deposits and “keep their powder dry”.

The Australian Bureau of Statistics (ABS) capital expenditure (capex) data for Q4 2020 increased three percent to A$29.4 billion, outstripping expectations for one percent, with investments in P&E and machinery accounting for 5.7 percent. The vigorous jump in P&E and machinery spend contrasts with the performance of buildings and structures, which rose by sub one percent, attributed predominantly to the government's expanded instant asset write-off provision which excludes buildings.

New car sales jumped sharply in November and December by 12.4 percent and 13.5 percent respectively, ending over two years of falls and the longest period of sluggish new car sales since 2008. The Business Council of Australia reiterated that business investment as a share of GDP was at 30 year low and Australia risked squandering its good fortune if businesses were not incentivised to take big swings, also highlighted by East & Partners latest Asset & Equipment Finance analysis.

Almost two thirds of the 23,800 ANZ business customers that requested loan deferrals in 2020 had larger balances by Q4 2020 relative to the end of Q1 2020. However, how that capital will be deployed remains to be seen. ANZ’s optimism about the outlook is supported by the rollout of the vaccine and low interest rates. SMEs may not be in the ‘doom and gloom’ scenario many pundits forecast this time last year but they are equally not carrying on with the successful COVID pandemic rebound with a fully fledged recovery.

"Business investment is pretty meagre at the moment. The world is still a very scary place and it's still pretty uncertain. And businesses are sitting on quite a significant amount of cash. The figures are propped up by small businesses buying new vehicles” stated ANZ CEO Shayne Elliott

"If you take the utes out, there hasn't been a lot of business investment, and you can understand why. When we get out and talk to our customers the vast majority are not quite as scared, but they are not quite ready to invest. These things take time to bed down. There will be a pick-up in investment, but we are not really seeing that just yet” Mr Elliott added.

"Investment in utes and office equipment is important, particularly to small business, but that's not enough if we want to be a more export-orientated and dynamic economy. "To succeed in our traditional areas of strength as well as new and emerging sectors, we need to unleash the private sector to drive investment to help transition to a more modern economy" said Business Council of Australia CEO Jennifer Westacott.

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