Business Environment Profiles - Australia
Published: 07 October 2024
Capital expenditure by the private sector
442 $ billion
3.2 %
This report analyses total capital expenditure by the private sector. This includes expenditure on machinery and equipment, dwelling and non-dwelling construction, cultivated biological resources, intellectual property products and any ownership transfer costs. The data for this report is sourced from the Australian Bureau of Statistics and is measured in billions of seasonally adjusted 2021-22 dollars.
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IBISWorld forecasts capital expenditure by the private sector to inch downwards by 0.2% in 2024-25, to total $441.6 billion. Capital expenditure on private dwellings is anticipated to fall over the year, while a downward trend in commodity prices is projected to weigh on capital expenditure from some areas of the Mining division. Even so, climbing business profit and improvements in business confidence are placing upwards pressure on capital expenditure on machinery and equipment, limiting drops in capital expenditure by the private sector over the year.
Despite a forecast drop in the cash rate, an elevated cash rate environment and lingering inflationary pressures are expected to dampen private capital expenditure over 2024-25. While lower interest rates typically stimulate investment, the prevailing high rates coupled with ongoing inflation are likely to hinder private capital expenditure. Mounting costs for materials, labour and overheads have caused many firms to cut back and delay or delay investment.
The onset of the COVID-19 pandemic caused private capital expenditure to decline sharply in late 2019-20. Expenditure decreased in most categories, with machinery and equipment and private dwellings strongly affected. Meanwhile, initiatives by state and federal governments to stimulate economic activity following the COVID-19 pandemic have encouraged private capital investment. The broadening of the Federal Government's instant asset write-off scheme was particularly effective, leading to strong growth in expenditure on machinery and equipment. Significant renovation activity on residential dwellings also contributed to the overall rise in capital expenditure by the private sector over 2020-21. The Federal Government's HomeBuilder scheme encouraged capital expenditure on private dwellings. In particular, capital expenditure on additions and alterations rose significantly towards the end of the scheme, supported by a surge in last minute applications.
Capital spending on non-residential construction has been volatile over the past five years, rising overall. The onset of COVID-19 and subsequent economic constraints led to many privately funded construction projects being postponed or cancelled, negatively affecting capital spending on engineering construction projects. Nevertheless, state and federal governments have invested significantly in non-residential construction projects over recent years. Overall, IBISWorld forecasts capital expenditure by the private sector to rise at a compound annual rate of 3.2% over the five years through 2024-25.
IBISWorld forecasts capital expenditure by the private sector to edge downwards by 0.2% in 2025-2...
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