Business investment tipped to rise as mid-size firms start hunting for credit again

There are fresh signs that Australia’s businesses are starting to shake the spending shackles, with a new survey from financial services research firm East & Partners showing 40% of firms with revenue between $20 million and $100 million are looking to increase their borrowings.

The survey results come as a separate survey of Australia’s top economists has tipped business investment to surge 13% in 2011, underpinned by strong investment in mining.

While entrepreneur surveys such as PwC’s business barometer suggested that many mid-size businesses had largely given up on securing finance in 2010, the new figures from East & Partners show that growth is now firmly back on the agenda.

Of the 40% of mid-sized companies that are looking for funding, most want to increase their borrowing levels by 25%, which suggests that major investments in plant, equipment, property and working capital are in the pipeline for 2011.

However, East & Partners’ head of market analysis, Robert Morgan, says there is still some caution among mid-size companies about actually securing funding and says this could have an impact on the “renewed enthusiasm” for business credit.

“Issues such as access to credit continue to temper this enthusiasm and it will be fascinating to see how these issues affect credit demand during the first part of next year.”

The increase in demand for credit is supported by forecasts from forecasting group Australian Business Economists, which has released its predictions for 2011.

The groups executive committee is tipping economist growth to be 3.5% in 2011 and 2012, underpinned by surging business investment, which is tipped to rise 13% in 2011 and 11% in 2012.

While much of this increase will be driven by the mining sector, household consumption is expected to rise by 3.3% in 2011 and 2.7% in 2012, which should be some comfort to Australia’s beleaguered retail sector.

However, there are some dark clouds on what is a fairly bright horizon.

Growth in dwelling investment is tipped to fall from 4.9% to 3.8% in 2011, while there is no relief in sight for exporters, with the Australian dollar expected to remain at parity through to June 2011.

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