Deloitte Access Economics Investment Monitor

29 OCTOBER 2024: Businesses are less willing to invest in expanding their capacity because of the subdued outlook for the economy, according to the latest research from Deloitte Access Economics. Uncertainty around the demand for products and services in the coming years means many businesses will instead opt to shore up their balance sheets and wait for greater certainty before investing. 

The total value of projects in the database was largely unchanged, at $1.12 trillion, in the September quarter. The increase in the value of the database from new projects and cost revisions was offset by several projects that completed construction or were removed from the database. 

Despite not expanding in recent months, the value of the Investment Monitor database remains almost 20% higher over the year. The value of planned projects (which are defined as those under consideration or possible) rose to a record high of $617 billion in the latest quarter. This is an increase of $107 billion over the year – more than 90% of which is due to new wind, solar, battery storage and hydrogen projects that will be critical to Australia’s transition to net zero.

Releasing the latest edition of the quarterly Investment Monitor report, Deloitte Access Economics partner and lead author, Stephen Smith, said: “Outside of these fast-growing industries it’s clear that the weak outlook for the Australian economy is weighing on investment. 

“The challenging backdrop for businesses is compounded by higher input costs (particularly for labour) and elevated interest rates. The combination of lower demand and higher costs has hit profits, which fell by 10% in 2023-24 – the first fall since 2019-20. The mining industry led the declines, but growth in non-mining profits halved over the year. 

“Constrained construction industry capacity is also limiting the ability of businesses to invest. This directly affects engineering and non-residential construction, which collectively account for between 40% to 60% of total business investment each year.

“According to Infrastructure Australia, the country needs a further 212,000 workers to deliver the national infrastructure pipeline. The shortages may get worse before they get better. The projections of the workforce gap can only account for known projects, so trail off in future years. Yet it is likely that some new spending is announced by the federal and various state governments in the run-up to elections through the remainder of 2024 and into 2025. 

“There are also limits on the pace at which new workers can be drawn into the industry. Despite additional funding for training places, it will take several years for these new workers to enter the industry. It is also increasingly difficult to bring qualified workers from overseas. Construction skill shortages are a global phenomenon, while there are barriers to recognising overseas qualifications in Australia.

“This is happening at the same time as the demands on the construction industry have reached new heights. There is a record pipeline of infrastructure to be built, with the value of infrastructure projects underway set to grow from $350 billion in 2024 to $380 billion in 2025. Ambitious targets have also been set for housing construction in the next five years. 

“Addressing the challenges facing the construction industry will be an important step in driving faster rates of growth in the Australian economy. More investment today means a larger and more productive economy in the future.

“Although the near-term outlook for investment remains subdued, there are several longer-term opportunities for businesses. Significant investment will be required as Australia transitions toward net zero emissions. The value of electricity supply projects has increased four-fold compared to just five years earlier, while demand for critical minerals and commodities such as hydrogen is already supporting new mining and manufacturing investment. 

“Businesses are investing in a wave of new technologies to unlock productivity gains and safeguard their operations. Much of this is appearing as intellectual property investment – which isn’t captured in the Investment Monitor database – but technology trends are also promoting investment in physical capital. 

“The database lists more than $23 billion worth of data centre projects across Australia, with many businesses investing in the automation of assets such as warehouses.”

Overall, the improving economic outlook and longer-run growth opportunities support an acceleration in investment from 2025-26.

The value of infrastrcture investment projects under construction¹

^{1 Note: This chart uses project start and end dates, weighted by project status, to estimate the future value of projects under construction. Excludes any new projects that may enter the Investment Monitor database in the future}

Deloitte Access Economics’ Investment Monitor is primarily a source of information for businesses and others about major engineering and commercial construction projects and their promoters. It is also a barometer of structural change in the Australian economy, and of the investment climate – now and in the future.