Is capital investment on the rebound in 2018?
Australia's economy is changing. The long-awaited transition away from reliance on the mining and resources sector has caused optimism among business leaders and economic commentators alike, who are confident about the year ahead.
This has led to increased capital investment in Australian businesses, as outlined in figures released both by the Australian Bureau of Statistics and Illion.
Capex on the up
Private sector capital expenditure (capex) rose by 0.8 per cent between September and December 2017, with an extremely positive 4.4 percentage point change from December 2016.
Equipment, plant and machinery investment rose by 2.1 per cent in the quarter, and saw a 6.5 per cent increase for the year.
Particularly promising for the Australian economy has been the move away from mining and toward other industries. Illion's 2018 Australian Business Expectations Survey indicate that in the third quarter of 2017, business actuals were much higher than at the same time a year ago:
- Transport, Communications and Utilities: 23.6 points in 2017, compared to 11.3 points in 2016.
- Finance, Insurance and Real Estate: 20.6 points in 2017, compared to 16.3 in 2016.
- Construction: 19.8 points in 2017, compared to 3.4 in 2016.
- Manufacturers: 18.3 points in 2017, compared to 11.2 in 2016.
The actual performance of these industries in the September quarter was at a 13-year high, and highlights the significantly improved nature of Australia's economy.
Profit expectations driving confidence
Part of the reason why capex is so strong currently is Australian businesses' high profit expectations for the coming year. Profits are expected to reach 29.2 points on the Illion index, with transport, communications and utilities reaching its highest expectations level since the final quarter of 2012.
The strengthening Australian economy has given many commentators cause for confidence. "We are cautiously optimistic that this represents the end of mining investment hangover and some sustained signs of life in services investment," Citibank's Josh Williamson said of the changes.
Australian businesses will want to capitalise on the improving economic conditions. However, even if profits are high, the buoyancy of many businesses is still largely dependent on whether their customers are paying their invoices on time. Fortunately, Classic Funding Group can provide debtor finance, whereby can take out a loan against your outstanding invoices.
We also provide equipment finance solutions for those wanting to invest in new equipment while still wishing to remain flexible.