Asset investment increases in Australia

According to the Alleasing Equipment Demand Index, 15 out of 20 industries across Australia are either growing or intending to grow during Q2 2017.

Nearly one-third of businesses nationally (30.6%) plan to increase their asset base during the June quarter compared to 25.6% from the previous index.

A greater proportion of businesses in Western Australia plan to increase their asset base, rising from 14% in Q1 2017 to 25.9% for Q2.

Queensland is also positive, with predicted demand doubling from 16.5% to 31.4%, although responses were collected before the industry was affected by Cyclone Debbie, which is likely to show in the Q3 index.

Businesses in South Australia and the Northern Territory were the least positive, with a below average 23.2% planning asset acquisitions, suggesting that the energy crisis in South Australia may have played a role in dulling sentiment.

New South Wales and the Australian Capital Territory continue to deliver the most positive response, with 33.8% planning an increase in assets.

The index reports that with economic growth in New South Wales at 3.5%, this appears to have had a positive effect on businesses in the state.

In Victoria and Tasmania, a lower 29.4% of businesses are forecasting acquisitions, down from 31.3% in the previous round.

Daniel Blizzard, chief executive of Alleasing, said: “The improved results in both Western Australia and Queensland [are] a key factor in the national average for the index moving up by 5%.

“The resurgence in commodity prices in the second half of last year is now starting to impact sentiment and this in turn is flowing through to plans to acquire assets and drive growth. We are clearly seeing businesses in the mining services industry regaining confidence.

“Although the number of firms intending to increase their asset base is below the national average, it has jumped 7% from the previous quarter.”

According to the Australian Bureau of Statistics, Australian businesses are forecast to spend around AUD$52 billion on plant and equipment in the 2017 financial year.

Index data suggests there is a clear bias towards outright purchase of this equipment, with respondents reporting that an average of just 25% of their current asset base is leased or otherwise financed.

These figures suggest that of the assets acquired this financial year, AUD$40 billion, or around 2.5% of GDP, will be purchased outright, while AUD$12 billion will be financed.

Further highlighting the bias towards outright ownership of assets, four in 10 respondents use their own equity to fund asset purchases. The figure was higher for smaller businesses, at 45% for SMEs and 37% for upper corporates.

Blizzard added: “Not all of the AUD$40 billion businesses will spend on buying assets this year could be financed, but if a portion of these funds were freed up for growth via the use of alternative capital, we could see a significant impact on individual businesses and the broader economy.”

Asset Acquisition Intentions by State