Business investment outlook deteriorating: Deloitte
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The news: Businesses are expected to hold off investing amid an uncertain economic environment, according to a new Deloitte report.
One of the measures cited by Deloitte, the Economic Policy Uncertainty Index, has more than doubled from a low in early-2024 to its current reading in early-2025, underpinning the expectation of sluggish investment activity.
In the near-term, the construction outlook has been constrained and this is dampening investment overall. However, pressures are starting to ease on this sector.
However, the longer-run investment outlook is supported by the significant investment required for the net zero transition, technology trends such as generative AI, and physical technology infrastructure such as data centres.
The numbers: In the past few months, Deloitte’s Investment Monitor has remained relatively flat but over 2024 was up 15%. There are now $505 billion worth of definite projects, a 20% increase. But there is a decrease in planned projects over the quarter, down $16.2 billion to $601 billion.
The Investment Monitor measured projects valued at $50 million or more and counted 1,664 in the database. The database peaked in mid-2024.
In the last quarter, 50 projects were completed. Transport and renewable energy industries have been driving the project investment in the pipeline.
What they said: “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,” said Deloitte Access Economics associate director Sheraan Underwood.
“At the same time, operating costs continue to increase. Labour costs are above their long-run average and are expected to remain so through 2025, while non-labour costs such as energy and insurance are rising.
“This challenging operating environment of decelerating demand and rising costs is starting to chip away at profits. Many businesses have been able to pass on higher costs to customers.
“This kept profit margins around pre-pandemic averages. But total business profits fell over the past year, with large falls in the mining industry and smaller falls elsewhere.
“Businesses are now responding by implementing cost-cutting measures. Against this backdrop, many businesses will find it prudent to shore up their balance sheets and wait for greater certainty around the broader macroeconomic environment before investing.”
The source: Deloitte Investment Monitor
