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EPO 2021: Business spending plans at 30-year low despite consumer optimism

Business investment is at a 30-year low and is not mirroring the optimism seen in other economic indicators like household spending plans and consumer confidence, NAB’s Chief Economist, Alan Oster, told the audience at CEDA’s Economic and Political Outlook (EPO) 2021.  

Business investment is at a 30-year low and is not mirroring the optimism seen in other economic indicators like household spending plans and consumer confidence, NAB’s Chief Economist, Alan Oster, told the audience at CEDA’s Economic and Political Outlook (EPO) 2021.   

Mr Oster painted a generally upbeat picture of the Australian economy as it moves out of the COVID-19-induced recession of last year.

But he said the ratio of business investment to GDP is an area of real concern. 

“The economy has turned around, but business investment is still going backwards,” he told the EPO forum, which was livestreamed around the country for the first time 

“We’re not seeing any sign at all that business investment is picking up.

“The ratio of business investment to GDP is probably at a 30-year-low.” 

Despite that, NAB’s business customer surveys are showing strong levels of confidence and an appetite to spend in the near future

But Mr Oster said: There’s no rubber hitting the road” at the moment

Like the Reserve Bank, we are hoping it might turn around in the middle of the year,” he said.

Across the economy, things have improved substantially from where they were at the economic nadir of the pandemic, though they still have a long way to go before returning to where they need to be.

“Our business surveys are saying all the key measures – confidence, business conditions, forward orders – all are above long-run average,” Mr Oster said

“Total consumption is still up four to five per cent vis-a-vis this time last year, and retail is even stronger. 

“Revenues coming into business customers are basically up about 14 per cent – and very little is dependent on JobKeeper. 

He predicts GDP to grow around four per cent this year, though those strong numbers won’t be matched in the jobs market

It still means unemployment is up around six per cent by the end of this year,” he said, adding he expects it to fall just another half-a-percentage point the following year.

“It’s a great snapback. The damage that was done to Australia’s economy was much less than we all feared.

“But the reality is, this a deflationary shock, you’re not getting much increase in wages … There’s still challenges. 

   


Too much focus on the silver lining


Social Outcomes Economics Consultant Nicki Hutley warned against becoming too optimistic about the positive numbers seen in many parts of the economy.

At the moment, we’re possibly focusing a little bit too much on the silver lining and perhaps ignoring the still-large cloud that hangs over the economy,” she told the discussion. “It certainly doesn’t take much, as we’ve seen with Victoria, for us to hit another bump in the road.

"While we might have gone past the worst economic impacts, we’ve certainly got lingering ones to come. 

Need for ongoing support


Both speakers agreed there was a need for ongoing stimulus from the Commonwealth, particularly internationally exposed sectors such as travel and education.

“They will withdraw JobKeeper, but they have to have additional support,” Mr Oster said.  

“They’re doing it really tough [in those parts of the economy]. 

“The economy still needs support, but we’re doing so much better than we previously thought we were going to.” 

Ms Hutley said government stimulus should be used to ramp up changes in areas such as climate change and childcare. 

We haven’t really looked at this as the opportunity for long-term change,” she said.  

“What I hope we will see is [looking at] where we can use that stimulus to drive significant reform.  

“There’s still a lot of reforms we could do, and that’s where I’d like to see the focus of 2021. 

About the Economic and Political Outlook


CEDA's Economic and Political Outlook is Australia's premier publication and series of events held in Australia's capital cities and major regional centres, focussing on the Australian economy and politics for the year ahead.

Running for 40 years, the EPO brings together political, economic and business leaders and provides CEDA members with business intelligence on the environment they will be operating in over the next 12 months.

ECONOMIC AND POLITICAL OUTLOOK (EPO) 2021

CEDA’s 2021 Economic and Political Outlook (EPO) report examines why governments should seize opportunities that deliver long-term economic and social benefits to secure Australia’s recovery from the COVID-19 pandemic.

Downloadable resources
DOWNLOAD EPO 2021 REPORT