Finance Small Business Businesses reluctant to invest in new assets amid COVID uncertainty

Businesses reluctant to invest in new assets amid COVID uncertainty

Only one in five businesses say they are confident investing in new equipment and buildings amid the pandemic. Photo: Getty
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Most businesses have no plans to invest in the early months of next year while many are still suffering from a downturn in demand sparked by the pandemic, a new survey has found.

More than 40 per cent of businesses were still reporting weak consumer demand in November, while 9 per cent battled supply disruptions and 7 per cent experienced a drop in productivity, according to an Ai Group survey of businesses released on Monday.

Of the businesses surveyed, only 22 per cent had capital expenditure in the works for the three months from November.

They cited demand for products or services, tax incentives, and modifications in response to COVID-19 as some of the factors driving their investment plans.

Ai Group chief executive Innes Willox said many business owners were worried a recent improvement in conditions could be a temporary bounce, rather than the onset of sustainable momentum.

“The notion that COVID and its impacts will magically disappear when the calendar clicks over to 2021 is a fallacy,” he said.

“We are going to have to work harder than ever on rebuilding and regenerating our economy at a time of continued intense domestic pressure and increased global uncertainty and volatility.”

Among the 22 per cent of businesses that planned to invest in the three months from November, roughly 60 per cent plan to invest in equipment and machinery other than IT, half plan to invest in IT equipment or software, and about one-fifth plan to invest in vehicles.

Meanwhile, some 19 per cent plan to invest in new buildings or other built structures.

“The next couple of months will be critical in signalling whether higher household confidence translates into enough additional spending to convince businesses to continue to lift employment and to commit to additional investment,” Mr Willox said.

“At the top of the risks to our economy are the federal government reducing or removing fiscal support from business and employment too early and the spreading geopolitical trade problems
 with China.”

In October, the federal government unveiled a $26.7 billion scheme in the budget allowing businesses to deduct the full cost of new assets installed up to June 2022.

NAB’s most recent monthly business survey showed business conditions and confidence climbed last month to “above average” levels after Victoria’s lockdown ended and the state borders reopened.