Business Investment Remains Drag on Growth

Latest data shows that business investment levels are the major impediment to more robust economic growth in Australia. For the year to the end of September 2014, gross domestic product (GDP) growth was 2.60%, with evidence that growth is stalling.

The chart below, from the FWPA Data Dashboard, shows quarterly, seasonally adjusted GDP growth.

Fig 6


For further details, go to the FWPA Data Dashboard.

After growing in MQ’14 by a healthy 1.0%, GDP growth halved in JQ’14 and slumped further in the September Quarter, growing just 0.3% for the quarter. Having grown 2.9% for the year to the end of March 2014, there was hope and some expectation of a sustained period of solid economic growth. 

Taken on their own, the latest figures will suppress year-end economic growth over the next four quarters. More disturbingly, expectations are towards a period of lower growth, driven by weakness in business investment levels, in particular.

Although it has improved on the year to end September 2013, business investment dragged 0.4% off annual GDP for the year to end September 2014. The chart below shows the contributions to growth in GDP, to the year ended September 2014, compared with the prior year.

Fig 7


For further details, go to the FWPA Data Dashboard.

While the chart shows households increased their consumption over the period, along with exports, inventory and both new dwellings and alterations and additions, business investment recorded a second successive year of negative contribution to GDP.

Reflections of this can be observed in the wider economy, where unemployment has risen and is trending upwards as the chart below shows.

Fig 8


For further details, go to the FWPA Data Dashboard.

Unemployment has been trending upward through 2014 and as at January 2015, the has increased to 6.4% on a seasonally adjusted basis. In December 2013, the seasonally adjusted unemployment rate was 5.9%. 

Just as important, modest growth in the seasonally adjusted participation rate (the number of people in or actively looking for work) to 64.8%, returns activity in the labour market to the highest level it has achieved since mid-2013. This data is also available from the FWPA Data Dashboard.

Despite the recent movements, the unemployment rate is expected to increase with measures of business confidence and ‘hiring intention’ signaling higher unemployment is likely in 2015.

The impact of stagnant growth in business investment is evident in the Australian economy’s underlying and most important indicators of success.