Business investment at risk of derailment

Deloitte Access economist Stephen Smith says lockdowns are 'kryptonite' for business investment.
Deloitte Access economist Stephen Smith says lockdowns are 'kryptonite' for business investment.

Lockdowns and restrictions dotted around the country risk derailing the recovery in business investment, a new report warns.

Deloitte Access Economics partner Stephen Smith says many of the elements that have seen private business investment grow since late 2020 remain in place to stand just 2.2 per cent below their pre-COVID levels.

"But when it comes to new investment there is never a guarantee," Mr Smith said releasing his latest quarterly Investment Monitor.

"Ongoing lockdowns or the threat of restrictions are kryptonite for investment. Businesses will want to see a clear path out of COVID-19 before committing to significant new investments."

Prime Minister Scott Morrison said short and sharp lockdowns were essential to limit economic damage and were at the core of the advice given to government about dealing with the pandemic.

"It showed if you don't do those short, sharp lockdowns in this phase with the Delta variant it ends up costing you even worse," Mr Morrison told 5AA radio on Monday.

"It's not just in the health interest, it's in the economic interest to get on top of this as fast as we can otherwise the cost is far greater, as we are seeing in NSW."

Mr Smith said despite an expected increase in vaccine supply, the Delta outbreak means that the problem is bigger and vaccine hesitancy means that the solution will be slower.

At the same time, some areas of the investment landscape have become more challenging as a result of COVID, with many offices, shopping centres, airports and hotels suffering significantly lower usage.

Given the strength of public infrastructure investment, the high level of residential construction activity and the lack of skilled migration to Australia, it also raises the question of whether projects can be delivered on-time and on-budget, Mr Smith said.

Even so, Deloitte Access Economics is forecasting investment to grow in 2021, before accelerating in 2022.

"The outlook will depend on maintaining a high level of business confidence over the next year, as well as the speed at which COVID restrictions are eased," Mr Smith said.

"The longer we appear to the world as a closed and risk-averse society, the more likely investment dollars will head to other countries instead."

Mr Morrison said he expected the economy to "bounce back" because the fundamental settings were right.

The value of investment projects rose by $25.1 billion in the June quarter to $783.4 billion, a 3.3 per cent increase from three months earlier.

This was largely due to additional infrastructure investment in recent government budgets and private investment in the mining and utilities industries.

The value of definite projects - those under construction or committed - increased by $18.8 billion over the quarter to $323.4 billion.

The value of planned projects - those under consideration or possible - increased by $6.3 billion over the quarter to $460.0 billion.

Australian Associated Press