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The shortage of both debt and equity funding will be disastrous for business investment in the year ahead, BIS Shrapnel’s Long Term Forecasts, February 2009 has claimed.
According to the report, the financial crisis in many developed countries means they will experience sharp recession followed by prolonged weakness.
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Australia on the other hand will experience a relatively moderate downturn, which will be followed by lingering weakness as falls in business investments constrain growth.
“Currently, investment remains firm as we finish the last round of projects across the board. However the next round of projects has been slashed and business investment will fall sharply over the next few years,” BIS Shrapnel’s chief economist Dr Frank Gelber said.
The research house waned that the end of the credit squeeze won’t solve Australia’s problems. Instead, the nation needs to look beyond the current weakness to understand the factors that will shape the economy over the next five years.
When analysing the medium-term strength of the Australian economy, Dr Gelber said the lower Aussie dollar, the influence of stimulatory interest rates, the impact of falling business investment in general and government infrastructure spending all need to be considered.
BIS Shrapnel concluded that the strength of the domestic economy over the next five years would depend on the extent to which strong housing and government spending on infrastructure can offset falling business investment.
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