1 00:00:04,200 --> 00:00:06,240 Speaker 1: Welcome to the Fear and Greed summer series, brought to 2 00:00:06,320 --> 00:00:09,320 Speaker 1: you by Westpac. I'm sure, n Ailmer. Business investment is 3 00:00:09,360 --> 00:00:12,560 Speaker 1: important because, more than most other factors, it determines how 4 00:00:12,600 --> 00:00:15,960 Speaker 1: productive and economy will be in the future, not just today. 5 00:00:16,280 --> 00:00:18,720 Speaker 1: How is Australia fairing when it comes to business investment. 6 00:00:18,760 --> 00:00:22,080 Speaker 1: My guest today is Westpac Chief economist Lucy Ellis. Lucy, 7 00:00:22,120 --> 00:00:23,200 Speaker 1: welcome back to Fear and Greed. 8 00:00:23,800 --> 00:00:25,320 Speaker 2: Thanks Sean. Always a pleasure to be here. 9 00:00:25,520 --> 00:00:27,720 Speaker 1: Why is business investment so important? 10 00:00:28,520 --> 00:00:34,000 Speaker 2: Well, business investment is important because it gives workers more 11 00:00:34,080 --> 00:00:37,479 Speaker 2: machines and capital and equipment to work with. And that 12 00:00:37,600 --> 00:00:40,920 Speaker 2: might be better software programs, it might be better machines, 13 00:00:41,240 --> 00:00:44,560 Speaker 2: it might be a better laid out building. It's all 14 00:00:44,640 --> 00:00:48,559 Speaker 2: giving people more to work with. It helps them do 15 00:00:48,760 --> 00:00:50,440 Speaker 2: more in the same amount of time. 16 00:00:51,200 --> 00:00:55,480 Speaker 1: How do does management then work out business investment. 17 00:00:56,520 --> 00:00:59,520 Speaker 2: It's an incredibly good question, Sean. A lot of it 18 00:00:59,600 --> 00:01:02,160 Speaker 2: is really about how they think their business is going 19 00:01:02,200 --> 00:01:05,720 Speaker 2: to go, how they think demand for their product is 20 00:01:05,760 --> 00:01:07,840 Speaker 2: going to go, So a lot of it really depends 21 00:01:07,920 --> 00:01:10,280 Speaker 2: on how they think the economy is going and in 22 00:01:10,280 --> 00:01:13,520 Speaker 2: particular in their industry, and so they're not going to 23 00:01:13,800 --> 00:01:17,759 Speaker 2: invest into a weak economy. But the other thing that 24 00:01:17,840 --> 00:01:20,600 Speaker 2: people are mindful of is sort of the opportunities of 25 00:01:20,600 --> 00:01:23,360 Speaker 2: perhaps a new technology, and that's when we start talking 26 00:01:23,400 --> 00:01:26,560 Speaker 2: about some of the new technologies that have come in 27 00:01:26,600 --> 00:01:29,200 Speaker 2: to play in the last couple of years, particularly AI, 28 00:01:29,360 --> 00:01:34,120 Speaker 2: but not only AI. There's been an uplift in investment 29 00:01:34,160 --> 00:01:37,600 Speaker 2: in data centers in Australia, not as much as you're 30 00:01:37,600 --> 00:01:40,640 Speaker 2: seeing in the United States, but those are things that 31 00:01:41,280 --> 00:01:45,680 Speaker 2: businesses are investing in because they see opportunities in terms 32 00:01:45,760 --> 00:01:49,800 Speaker 2: of not only adopting new technology, but also actually having 33 00:01:49,800 --> 00:01:52,360 Speaker 2: more efficiency. If you put all your servers in the cloud, 34 00:01:52,800 --> 00:01:55,520 Speaker 2: it's actually more efficient than keeping all your own servers 35 00:01:55,520 --> 00:01:58,040 Speaker 2: in your own building, So there's efficiency gains to be 36 00:01:58,080 --> 00:01:58,680 Speaker 2: made as well. 37 00:01:59,160 --> 00:02:02,200 Speaker 1: Okay, in terms of business investment, what's it been like 38 00:02:02,240 --> 00:02:04,520 Speaker 1: the last twelve months and what's your outlook, and then 39 00:02:04,560 --> 00:02:06,760 Speaker 1: I want to get into what the people are investing in, 40 00:02:06,760 --> 00:02:08,120 Speaker 1: what businesses are investing in. 41 00:02:09,600 --> 00:02:12,640 Speaker 2: Well, there's a number of things going on, and part 42 00:02:12,680 --> 00:02:14,920 Speaker 2: of the issue that we need to be aware of 43 00:02:15,080 --> 00:02:17,040 Speaker 2: is that sort of mining investment has a lot of 44 00:02:17,040 --> 00:02:21,320 Speaker 2: swings around about. So when you look at the overall 45 00:02:21,400 --> 00:02:24,560 Speaker 2: numbers often, you know, what's happening to mining exploration, what's 46 00:02:24,560 --> 00:02:27,920 Speaker 2: happening to mining projects just throws the total numbers around. 47 00:02:28,320 --> 00:02:30,200 Speaker 2: The thing that I'm you know, we tend to look 48 00:02:30,240 --> 00:02:35,720 Speaker 2: at is what's happening in the non mining market sector, 49 00:02:35,840 --> 00:02:38,840 Speaker 2: so not health and education and sort of government driven things, 50 00:02:39,160 --> 00:02:41,280 Speaker 2: but everything, you know, the rest of the economy except 51 00:02:41,280 --> 00:02:44,800 Speaker 2: for mining, and there we've seen a decent uplift in 52 00:02:45,720 --> 00:02:50,160 Speaker 2: both in investment but also plans for future investment. And 53 00:02:50,200 --> 00:02:53,760 Speaker 2: that's partly machinery and equipment. You know, the construction industry 54 00:02:53,800 --> 00:02:56,600 Speaker 2: is obviously you know, looking ahead to being able to 55 00:02:56,639 --> 00:03:00,520 Speaker 2: do more now that some of the government infrastructure projects completing. 56 00:03:00,960 --> 00:03:03,840 Speaker 2: So there's been a bit of an investment pick up there. 57 00:03:04,600 --> 00:03:06,919 Speaker 2: There's always new buildings to build, but there has been 58 00:03:06,960 --> 00:03:10,240 Speaker 2: this increase in data center production or plans to do 59 00:03:10,320 --> 00:03:11,000 Speaker 2: so as well. 60 00:03:11,280 --> 00:03:13,960 Speaker 1: So is there a chance then we saw in the 61 00:03:14,680 --> 00:03:16,560 Speaker 1: like towards the end of last year, a lot of 62 00:03:16,600 --> 00:03:20,080 Speaker 1: capex in that whole data center area. We all understand, 63 00:03:20,120 --> 00:03:22,080 Speaker 1: we hear a lot about that, right. Is there a 64 00:03:22,160 --> 00:03:24,239 Speaker 1: chance though, that we've just putting so much money into 65 00:03:24,240 --> 00:03:26,000 Speaker 1: that other parts of the economy miss out. 66 00:03:27,919 --> 00:03:29,880 Speaker 2: I don't think that's going to be so much of 67 00:03:29,919 --> 00:03:32,840 Speaker 2: an issue in Australia because you know, we're not where 68 00:03:33,080 --> 00:03:37,240 Speaker 2: those tech companies are headquartered. A lot of the global 69 00:03:37,960 --> 00:03:41,000 Speaker 2: investment into data centers has been well, you know what 70 00:03:41,040 --> 00:03:43,680 Speaker 2: we call the hyperscalas, the really big tech firms, the Microsoft, 71 00:03:43,800 --> 00:03:47,240 Speaker 2: the Googles, the open AI, and they're doing a lot 72 00:03:47,240 --> 00:03:51,320 Speaker 2: of you know, their training of their models in the US, 73 00:03:51,480 --> 00:03:53,920 Speaker 2: you know, in big centers in Texas and all sorts 74 00:03:53,920 --> 00:03:56,760 Speaker 2: of places, and a lot of that depends on availability 75 00:03:56,760 --> 00:04:02,200 Speaker 2: of electricity. So the data centers here are more about 76 00:04:03,200 --> 00:04:05,480 Speaker 2: our own use, whether that's you know, the using the 77 00:04:05,480 --> 00:04:08,440 Speaker 2: models that already exist, but also this sort of cloud computing, 78 00:04:08,440 --> 00:04:12,920 Speaker 2: which is an efficiency increasing alternative to keeping your servers 79 00:04:12,920 --> 00:04:13,720 Speaker 2: in your own building. 80 00:04:14,000 --> 00:04:16,279 Speaker 1: Okay, I might ask that question another way, then, right, 81 00:04:16,800 --> 00:04:20,160 Speaker 1: is there a chance that business is so focused on 82 00:04:21,000 --> 00:04:24,159 Speaker 1: technology slash AI broadly use that as a very generic 83 00:04:24,240 --> 00:04:26,360 Speaker 1: term that they forget about other stuff. 84 00:04:27,040 --> 00:04:29,040 Speaker 2: I don't think that's the case, or at least I 85 00:04:29,040 --> 00:04:33,200 Speaker 2: hope it's not. The way I think about the business 86 00:04:33,240 --> 00:04:37,159 Speaker 2: sector mindset over the last few years, you know, twenty 87 00:04:37,240 --> 00:04:40,400 Speaker 2: twenty one, we were just trying to navigate the pandemic 88 00:04:40,760 --> 00:04:43,000 Speaker 2: then twenty two and twenty three, how do we make 89 00:04:43,080 --> 00:04:45,480 Speaker 2: hybrid work work? And how do we deal with labor shortages? 90 00:04:45,839 --> 00:04:48,880 Speaker 2: How do we deal with diversity and inclusion issues. It's 91 00:04:48,920 --> 00:04:51,000 Speaker 2: really only been in the last year or so that 92 00:04:51,080 --> 00:04:54,839 Speaker 2: businesses have sort of come out from under those discourses 93 00:04:55,240 --> 00:04:58,160 Speaker 2: and said, Okay, you know, it's time to go for it. 94 00:04:58,160 --> 00:05:01,000 Speaker 2: It's time to invest in new technology. I don't think 95 00:05:01,720 --> 00:05:04,560 Speaker 2: it's to the exclusion of other things, but absolutely when 96 00:05:04,600 --> 00:05:08,279 Speaker 2: I talked to our business customers, it's one of the 97 00:05:08,279 --> 00:05:09,560 Speaker 2: things they ask me about a lot. 98 00:05:10,080 --> 00:05:12,240 Speaker 1: Okay, is this going to be good for productivity then, 99 00:05:12,279 --> 00:05:13,719 Speaker 1: because that's a big problem for us. 100 00:05:14,320 --> 00:05:17,080 Speaker 2: Well, I'm going to answer that in a slightly different way. 101 00:05:17,160 --> 00:05:19,359 Speaker 2: If you look at that non mining market sector, actually, 102 00:05:19,360 --> 00:05:22,640 Speaker 2: productivity growth has been okay, it was one point five 103 00:05:22,720 --> 00:05:26,000 Speaker 2: percent over the year of the September quarter and there 104 00:05:26,120 --> 00:05:29,479 Speaker 2: was no real dip in productivity growth in that sector. 105 00:05:29,920 --> 00:05:34,480 Speaker 2: What's actually happened. The alleged slow productivity growth that Australia's 106 00:05:34,480 --> 00:05:38,240 Speaker 2: had has come from two things. One is, coal production's 107 00:05:38,279 --> 00:05:40,479 Speaker 2: gone down and so the mining sector has been a 108 00:05:40,480 --> 00:05:44,800 Speaker 2: net drag. That's the biggest factor. But also there's been 109 00:05:44,839 --> 00:05:47,440 Speaker 2: this ramp up in the care economy, and of course 110 00:05:47,480 --> 00:05:50,359 Speaker 2: that's a very labor intensive part of the economy. You know, 111 00:05:50,440 --> 00:05:54,240 Speaker 2: think about age care workers, disability, childcare workers. That's a 112 00:05:54,360 --> 00:05:57,400 Speaker 2: very labor intensive area. So you move if you have 113 00:05:57,480 --> 00:05:59,680 Speaker 2: more of the economy in that area, that drags down 114 00:05:59,680 --> 00:06:02,920 Speaker 2: the app bridge and that's been part of the story. 115 00:06:03,279 --> 00:06:06,760 Speaker 2: So unlike a lot of other commentators, we've actually been 116 00:06:06,839 --> 00:06:10,240 Speaker 2: a lot less worried about the underlying trend in productivity 117 00:06:10,279 --> 00:06:13,200 Speaker 2: growth and we wish people would look at those sort 118 00:06:13,200 --> 00:06:15,080 Speaker 2: of underlying sectoral trends. 119 00:06:15,600 --> 00:06:17,400 Speaker 1: A great place to leave it. I'm feeling happier about 120 00:06:17,400 --> 00:06:19,440 Speaker 1: the world. Lucy, thanks for talking to Fear and Greed 121 00:06:19,440 --> 00:06:20,120 Speaker 1: Summer Series. 122 00:06:20,400 --> 00:06:21,880 Speaker 2: Thanks very much, sure and always a pleasure. 123 00:06:22,000 --> 00:06:24,520 Speaker 1: That was Westpac Chief Economist Lucy Ellis. Don't forget to 124 00:06:24,600 --> 00:06:26,479 Speaker 1: follow on the podcast. I'm Seanielmer and this is the 125 00:06:26,560 --> 00:06:29,080 Speaker 1: Fear and Greed Summer Series, brought to you by Westpac.