Business investment forecast to drop significantly

by Julia Corderoy13 Nov 2015
Business investment is expected to decline significantly over the next two years, according to forecasts by a major bank.

According to NAB’s latest monthly business survey, business investment is expected to decline by around 7% in 2015/16 and 8% 2016/17 as business confidence remains flat.

The survey reveals that business confidence has been stubbornly sluggish over the past six months, despite solid business conditions. In October, the business confidence index dropped to +2 index points, after recording +5 index points in September. Whilst this is a positive result, NAB says it is still well below the long run average. 

According to NAB, concerns about growth in emerging markets and financial market volatility are likely to have influenced confidence over recent months. The recent drop in forward orders may also have weighed on confidence this month.

The forward orders index eased significantly in October to -2 index points from +3 in September and a recent high of +5 in August. This is below the long run average of the series, and is the first time the index has fallen into negative territory since the end of 2014. 

The drop in overall business confidence was somewhat broad based, according to the survey, although mining, manufacturing and finance/ property/ business improved. However, mining confidence still remains very weak despite an improvement. 

The deterioration was largely in transport/utilities (down 14) and recreation & personal services (down 11). Service industries (personal and business services) enjoyed the highest confidence levels (both at +5 points), while mining firms were least confident (at -14).