Private research and development expenditure

IBISWorld expects private R&D expenditure to increase by 1.0% in 2024-25, to reach $19.7 billion. Interest rate hikes during 2022-23 substantially impacted borrowing costs, leading to a decline in business confidence and limiting investment in R&D. While the cash rate is anticipated steady in 2023-24, elevated interest rates are likely to continue hindering R&D expenditure growth. Nonetheless, the ongoing rebound from the pandemic-induced economic downturn is expected to support R&D expenditure growth in the current year, although to an increasinly lesser extent.

R&D is an important driver of economic growth in advanced economies. Developing economies are able to expand by increasing labour force participation, improving education and healthcare services and boosting labour efficiency by investing in capital equipment. Advanced economies tend to rely more on new technologies and R&D expenditure than developing economies, given that they are already much closer to full employment. In 1987-88, R&D spending in Australia accounted for 0.5% of GDP. This has increased over the past two decades, with R&D expenditure expected to account for 0.8% of GDP in 2024-25. Nevertheless, Australia's share of GDP spent on R&D remains below the OECD average.

R&D expenditure has increased over the past few years, as technology companies have refocused their resources back towards R&D after a period of greater focus elsewhere, such as on fine-tuning hardware and software products aimed at enhancing the working efficiency of downstream clients. Companies in non-technology related industries, such as professional services firm Deloitte, have increasingly acquired technology start-ups to bring their digital services in-house and expand their IT service offerings. As a result, an increasing proportion of R&D is expected to be conducted by non-technology-based firms. Overall, IBISWorld forecasts private expenditure on R&D to rise at a compound annual rate of 3.2% over the five years through 2024-25.