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A $50b lost opportunity: Why businesses are investing less in the economy

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A key insight of economics is that economies go through both short-term "cyclical" changes — the boom and bust cycle — and more deep-seated “structural” shifts.

The distinction sounds academic, but it matters for how governments respond to a problem. Dealing with a structural change requires a different response to managing the ups and downs of the business cycle by tweaking interest rates or handing out goodies in the budget.

For a clear example of this, look at what’s going on with non-mining business investment, which is important for supporting economic growth and providing well-paying jobs.


You may not have heard much about it in the news, but non-mining investment has actually been one the economy's reasonably bright spots lately. As housing construction wanes after a slump in property prices, we'll need this kind of investment to pick up some of the slack, and the good news is this appears to be happening.

Non-mining investment (it helps to exclude the miners because resources projects are notoriously volatile) is rising at a fair clip, and these firms plan to lift investment by 9.8 per cent over the year, May figures showed.

However, when you're thinking about what makes societies wealthier over the longer term, it's important to look beyond the cyclical ups and downs over a quarter or a year. On this front, the news on business investment is less encouraging.

Indeed, a puzzle that's caused much head-scratching among economists since the global financial crisis is the long-term weakness of business investment.

According to a recent........

© The Age