Falling profitability to weigh on investment

The slowdown in domestic economic activity along with global trade tensions is becoming more of a concern for businesses in both countries. That means that sentiment has not been bolstered by the stimulus that has been injected into each economy. Lower interest rates in both countries should lower borrowing costs for firms and enable further household consumption. What’s more, the income tax cuts in Australia should provide a boost to consumption. Even so, on average businesses in Australia and New Zealand now expect profitability to become more challenging in coming months. That will inevitably weigh on firms’ investment decisions and is why we expect business investment to decline over the second half of 2019 in both countries.