Headwinds Ahead But Business Investment Still Growing

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Business investment is projected to continue trending upwards this year, according to ABS data, some welcome news for finance brokers amidst warnings of a possible recession.

ABS data for the September quarter, the most recent available, shows that private business investment rose by 2.5%, with more machinery and equipment purchases and non-residential construction anticipated in 2023.

Here we share some of the market conditions and sentiments shaping the year— and your business opportunities— ahead.

Consumer Sentiment Remains Tepid

Consumer sentiment made a slight comeback in January, jumping 5% compared to December, according to the Westpac-Melbourne Institute Consumer Sentiment Index. However this was largely attributed to the fact that there was no RBA Board Meeting, thus the cash rate remained unchanged.

“Sentiment is still depressingly low. The January read is in the bottom 10% of observations since the mid-1970s,” the Index’s authors wrote.

Still, the Index noted a few positive trends month-over-month, with consumer sentiment towards ‘family finances over the next 12 months’ lifting 6.6% and ‘economic outlook, next 12 months’ increasing by 10.2%, suggesting that consumers may be feeling slightly more optimistic about their future prospects once interest rates settle.

Demand for Vehicles Will Likely Taper

Australian retail turnover fell 3.9% in December, demonstrating that Australians are reining in their spending as inflation continues to rise. The Consumer Price Index hit 7.8% at the end of last year— the highest annual figure since 1990.

So while vehicle supply chain and delivery issues have eased, the decline in the retail landscape may indicate a slowdown for vehicle demand as well. With another interest rate increase on the horizon putting pressure on disposable income, the surge in vehicle demand is anticipated to taper in 2023.

Business Spending Expected to Rise

Eight in 10 business leaders across Australia (87%) expect business capital spending to grow or stay the same, a promising takeaway for brokers.

The JP Morgan survey also found that the majority (94%) anticipate that their revenues will increase or remain the same this year, with their three top growth strategies being to expand their distribution channels, expand into new domestic markets and introduce new products/services.

Only about half (46%) expect a recession— a sunnier outlook than business leaders in the U.K. (69%) and the U.S. (65%).

Key Takeaway for Brokers

With interest rate hikes, a potential recession and very real cost-of-living concerns in the cards, there are some major headwinds ahead for consumers. On the upside, the outlook for business investment looks promising for 2023 and may be an area to focus on for new growth opportunities.

It’s possible these market conditions may pose some challenges for brokers. As always, we will be here to support our members in navigating whatever turbulences comes this year.